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Altruism, Education and U.S. Wealth Inequality

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  • Christoph Winter

Abstract

This paper examines the extent to which intergenerational links through transfers of wealth and investment in human capital might help in accounting for the wealth inequality observed in U.S. data. We examine an overlapping-generations heterogeneous agents economy with idiosyncratic risk and altruistic parents. We extend previous models in two main dimensions. First, wealth transfers are derived on the basis of altruism rather than `joy-of-giving’ as assumed in previous computable OLG models. Secondly, we assume that parents can transfer not only wealth (through inter vivos transfers and bequests) but also human capital through education. We find that these features help significantly for accounting for the large inequality in wealth relative to earnings observed in the U.S. In particular, it is shown that altruism helps to explain why the distribution of wealth is more concentrated than the distribution of income, why bequests appear to be a luxury good and why transfer wealth is so high in relation to total wealth

Suggested Citation

  • Christoph Winter, 2006. "Altruism, Education and U.S. Wealth Inequality," 2006 Meeting Papers 423, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:423
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    More about this item

    Keywords

    intergenerational altruism; overlapping generations; human capital;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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