An impossibility theorem for wealth in heterogeneous-agent models with limited heterogeneity

Stachurski, John; Toda, Alexis Akira

doi:10.1016/j.jet.2019.04.001

Cited by 43 publications

(34 citation statements)

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“…We may thus expect to observe a power law in the size distribution of a population whose members have been growing like geometric Brownian motions since birth, and whose distribution of ages is exponential. The combination of Gibrat’s law with an exponential age distribution as a generative mechanism for power laws has been used extensively in recent economics literature [7] , [8] , [27] , [28] , [29] , [30] , [31] , [32] , [33] , [34] , [35] , [36] , [37] , [38] , [39] , [40] , [41] . Related techniques have also been employed in the physics literature [42] , [43] , [44] , [45] .…”

Section: Introductionmentioning

confidence: 99%

On the emergence of a power law in the distribution of COVID-19 cases

Beare

Toda

2020

Physica D: Nonlinear Phenomena

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free information in English and Mandarin on the novel coronavirus COVID-19. The COVID-19 resource centre is hosted on Elsevier Connect, the company's public news and information website. Elsevier hereby grants permission to make all its COVID-19-related research that is available on the COVID-19 resource centre-including this research content-immediately available in PubMed Central and other publicly funded repositories, such as the WHO COVID database with rights for unrestricted research re-use and analyses in any form or by any means with acknowledgement of the original source. These permissions are granted for free by Elsevier for as long as the COVID-19 resource centre remains active.

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Section: Introductionmentioning

confidence: 99%

On the emergence of a power law in the distribution of COVID-19 cases

Beare

Toda

2020

Physica D: Nonlinear Phenomena

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“…The power law literature identifies various plausible mechanisms (e.g., birth and death processes, creative destruction, stochastic-beta, heterogeneity in returns, and others) that can generate a Pareto tail in steady state (Benhabib et al, 2011(Benhabib et al, , 2013(Benhabib et al, , 2014Stachurski and Toda, 2019). Furthermore, as Gabaix, Lasry, Lions and Moll (2016) show, when the heterogeneity in returns is persistent, these models generate behavior that is also consistent with the dynamics of inequality.…”

Section: Related Literaturementioning

confidence: 94%

Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation

Guvenen¹,

Kambourov²,

Kuruşçu³

et al. 2022

Preprint

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How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average lifetime utility to a newborn (about 7.5% in consumption-equivalent terms). Turning to optimal taxation, the optimal wealth tax (OWT) in a stationary equilibrium is positive and yields even larger welfare gains. In contrast, the optimal capital income tax (OCIT) is negative-a subsidy-and large, and it delivers lower welfare gains than the wealth tax. Furthermore, the subsidy policy increases consumption inequality, whereas the wealth tax reduces it slightly. We also consider an extension that models the transition path and find that individuals who are alive at the time of the policy change, on average, would incur large welfare losses if the new policy is OCIT but would experience large welfare gains if the new policy is an OWT. We conclude that wealth taxation has the potential to raise productivity while simultaneously reducing consumption inequality.

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“…15 For an illuminating recent discussion, see Benhabib, Bisin, & Luo (2017). 16 See Stachurski & Toda (2019). 17 In Kaymak and Poschke's work, the long-run wealth distribution does not have a Pareto tail.…”

Section: Connections To the Recent Macro-inequality Literaturementioning

confidence: 99%

Sources of US Wealth Inequality: Past, Present, and Future

Hubmer

Krusell

Smith

2021

NBER Macroeconomics Annual

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This paper employs a benchmark heterogeneous-agent macroeconomic model to examine a number of plausible drivers of the rise in wealth inequality in the U.S. over the last forty years. We find that the significant drop in tax progressivity starting in the late 1970s is the most important driver of the increase in wealth inequality since then. The sharp observed increases in earnings inequality and the falling labor share over the recent decades fall far short of accounting for the data. The model can also account for the dynamics of wealth inequality over the period-in particular the observed U-shapeand here the observed variations in asset returns are key. Returns on assets matter because portfolios of households differ systematically both across and within wealth groups, a feature in our model that also helps us to match, quantitatively, a key long-run feature of wealth and earnings distributions: the former is much more highly concentrated than the latter.

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An impossibility theorem for wealth in heterogeneous-agent models with limited heterogeneity

Cited by 43 publications

References 46 publications

On the emergence of a power law in the distribution of COVID-19 cases

On the emergence of a power law in the distribution of COVID-19 cases

Use It or Lose It: Efficiency and Redistributional Effects of Wealth Taxation

Sources of US Wealth Inequality: Past, Present, and Future

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