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The Role of Permanent Income and Demographics in Black/White Differences in Wealth

  • Joseph G. Altonji
  • Ulrich Doraszelski

We explore the extent to which the huge race gap in wealth can be explained with properly constructed income and demographic variables. In some instances we explain the entire wealth gap with income and demographics provided that we estimate the wealth model on a sample of whites. However, we typically explain a much smaller fraction when we estimate the wealth model on a black sample. Using sibling comparisons to control for intergenerational transfers and the effects of adverse history, we find that differences in income and demographics are not likely to account for the lower explanatory power of the black wealth models. Our analysis of growth models of wealth suggests that differences in savings behavior and/or rates of return play an important role.

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File URL: http://www.nber.org/papers/w8473.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8473.

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Date of creation: Sep 2001
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Publication status: published as Altonji, Joseph G. and Ulrich Doraszelski. "The Role of Permanent Income and Demographics in Black/White Differences in Wealth." Journal of Human Resources 40, 1 (Winter 2005): 1-30.
Handle: RePEc:nbr:nberwo:8473
Note: LS PE
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  1. Lashawn Hayes, 2000. "Do the poor pay more? An Empirical Investigation of Price Dispersion in Food Retailing," Working Papers 974, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Research on Child Wellbeing..
  2. Robert Barsky & John Bound & Kerwin Charles & Joseph Lupton, 2001. "Accounting for the Black-White Wealth Gap: A Nonparametric Approach," NBER Working Papers 8466, National Bureau of Economic Research, Inc.
  3. Powers, Elizabeth T., 1998. "Does means-testing welfare discourage saving? evidence from a change in AFDC policy in the United States," Journal of Public Economics, Elsevier, vol. 68(1), pages 33-53, April.
  4. Lashawn Richburg Hayes, 2000. "Do the Poor Pay More? An Empirical Investigation of Price Dispersion in Food Retailing," Working Papers 825, Princeton University, Department of Economics, Industrial Relations Section..
  5. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
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