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Accounting for the determinants of wealth concentration in the US

Author

Listed:
  • Baris Kaymak

    (Universite de Montreal)

  • CHEUK SHING LEUNG

    (McGill University)

  • Markus Poschke

    (McGill)

Abstract

What are the fundamental determinants of high wealth concentration in the US? The recent literature has put forward high concentration of labor income, capital income risk and bequests as potential reasons. We use data on the joint distribution of earnings, capital income and wealth to identify the relevance of each component, and find that labor income differences are the most relevant source of wealth dispersion for most households. Heterogeneity in asset returns are crucial for generating the thick right tail of the wealth distribution for the wealthiest 0.01% of households. The findings are driven by the high correlation between earnings and wealth, and the substantial share of earned income among top income groups observed in the data.

Suggested Citation

  • Baris Kaymak & CHEUK SHING LEUNG & Markus Poschke, 2018. "Accounting for the determinants of wealth concentration in the US," 2018 Meeting Papers 911, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:911
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    References listed on IDEAS

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    1. Per Krusell & Anthony Smith & Joachim Hubmer, 2015. "The historical evolution of the wealth distribution: A quantitative-theoretic investigation," 2015 Meeting Papers 1406, Society for Economic Dynamics.
    2. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1693-1754.
    3. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2016. "Distributional National Accounts: Methods and Estimates for the United States," NBER Working Papers 22945, National Bureau of Economic Research, Inc.
    4. Kindermann, Fabian & Krueger, Dirk, 2014. "High Marginal Tax Rates on the Top 1%? Lessons from a Life Cycle Model with Idiosyncratic Income Risk," CEPR Discussion Papers 10208, C.E.P.R. Discussion Papers.
    5. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2016. "Appendix to "Distributional National Accounts: Methods and Estimates for the United States"," Working Papers 201604, World Inequality Lab.
    6. Jess Benhabib & Alberto Bisin & Mi Luo, 2015. "Wealth Distribution and Social Mobility in the US: A Quantitative Approach," NBER Working Papers 21721, National Bureau of Economic Research, Inc.
    7. Alexander Ludwig & Dirk Krueger, 2010. "Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation," 2010 Meeting Papers 388, Society for Economic Dynamics.
    8. repec:mea:meawpa:13267 is not listed on IDEAS
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