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Intergenerational wealth inequality: the role of demographics

Author

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  • António R. Antunes
  • Valerio Ercolani

Abstract

During the last three decades in the US, the older part of the population has become significantly richer, in contrast with the younger part, which has not. We show that demographics account for a significant part of this intergenerational wealth gap rise. In particular, we develop a general equilibrium model with an OLG structure which is able to mimic the wealth distribution of the household sector in the late 1980s, conditional on its age structure. Inputting the observed rise of life expectancy and the fall in population growth rate into the model generates an increase in wealth inequality across age groups which is between one third and one half of that actually observed. Furthermore, the demographic factors help explain the change of the wealth concentration conditional on the age structure; for example, they account for more than one third of the rise of the share of the elderly within the top 5% wealthiest households. Finally, consistent with a stronger life-cycle motive and an increase of the capital-labor ratio, the model produces an interest rate fall of 1 percentage point.

Suggested Citation

  • António R. Antunes & Valerio Ercolani, 2020. "Intergenerational wealth inequality: the role of demographics," Working Papers w202009, Banco de Portugal, Economics and Research Department.
  • Handle: RePEc:ptu:wpaper:w202009
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    References listed on IDEAS

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    6. Joachim Hubmer & Per Krusell & Anthony A. Smith Jr., 2020. "Sources of US Wealth Inequality: Past, Present, and Future," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, National Bureau of Economic Research, Inc.
    7. Ray Boshara & William R. Emmons & Bryan J. Noeth, 2015. "The Demographics of Wealth - How Age, Education and Race Separate Thrivers from Strugglers in Today's Economy. Essay No. 2: The Role of Education," Demographics of Wealth, Federal Reserve Bank of St. Louis, issue 2, pages 1-28.
    8. Dirk Krueger & Fabrizio Perri, 2005. "Understanding Consumption Smoothing: Evidence from the U.S. Consumer Expenditure Data," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 340-349, 04/05.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Two papers on the demographics of wealth and the real interest rate decline
      by Christian Zimmermann in NEP-DGE blog on 2020-06-23 13:57:52

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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J1 - Labor and Demographic Economics - - Demographic Economics

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