Distribution of wealth and incomplete markets: Theory and empirical evidence

Fiaschi, Davide; Marsili, Matteo

doi:10.1016/j.jebo.2011.10.015

Cited by 17 publications

(22 citation statements)

References 26 publications

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“…Similarly, it is important to allow for the possibility of a correlation between α n+1 and β n+1 to capture institutional environments where households with high labor income have better opportunities for higher returns on wealth in financial markets. Recently, Levy (2005), in the same tradition, studied a stochastic multiplicative process for returns and characterized the resulting stationary distribution; see also Levy and Solomon (1996) for more formal arguments and Fiaschi and Marsili (2009). 17 Finally, we calibrate and simulate our model to obtain the full wealth distribution, rather than just the tail.…”

Section: Rather Invariably Across a Large Cross Section Of Countries mentioning

confidence: 99%

“…In Section 5, we do a simple calibration exercise to match the Lorenz curve and the fat tail of the wealth distribution in the United States, and to study the effects of capital 17 Champernowne (1953) authored the first paper to explore the role of stochastic returns on wealth that follow a Markov chain to generate an asymptotic Pareto distribution of wealth. Recently, Levy (2005), in the same tradition, studied a stochastic multiplicative process for returns and characterized the resulting stationary distribution; see also Levy and Solomon (1996) for more formal arguments and Fiaschi and Marsili (2009). These papers, however, do not provide the microfoundations necessary for consistent comparative static exercises.…”

Section: Introductionmentioning

confidence: 99%

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The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents

2011

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We study the dynamics of the distribution of wealth in an overlapping generation economy with finitely lived agents and intergenerational transmission of wealth. Financial markets are incomplete, exposing agents to both labor and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth—of wealth inequality in particular—on various fiscal policy instruments like capital income taxes and estate taxes, and on different degrees of social mobility. We show that capital income and estate taxes can significantly reduce wealth inequality, as do institutions favoring social mobility. Finally, we calibrate the economy to match the Lorenz curve of the wealth distribution of the U.S. economy.

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Section: Rather Invariably Across a Large Cross Section Of Countries mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents

2011

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“…Pareto's economic discoveries initiated attempts of analytical descriptions of incomes of the societies and inspired an avalanche of related research works [2,3,[5][6][7][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24]. Among them, particularly significant are those of the economist Robert Gibrat [7,10,11].…”

Section: Introductionmentioning

confidence: 99%

“…Among them, the most significant seems to be the Clementi-MatteoGallegati-Kaniadakis approach [17], the Generalized Lotka-Volterra Model [5][6][7], the Boltzmann-Gibbs law [13][14][15][16], and the Yakovenko et al model [2,3]. Very recently, a mathematical model similar to that of Yakovenko et al has been developed [21]. It involves complex economic justification for microscopic stochastic dynamics of wealth.…”

Section: Introductionmentioning

confidence: 99%

Modelling of income distribution in the European Union with the Fokker–Planck equation

Jagielski

Kutner

2013

Physica A: Statistical Mechanics and its Applications

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Herein, we applied statistical physics to study incomes of three (low-, mediumand high-income) society classes instead of the two (low-and medium-income) classes studied so far. In the frame of the threshold nonlinear Langevin dynamics and its threshold Fokker-Planck counterpart, we derived a unified formula for description of income of all society classes, by way of example, of those of the European Union in year 2006 and 2008. Hence, the formula is more general than the well known that of Yakovenko et al. That is, our formula well describes not only two regions but simultaneously the third region in the plot of the complementary cumulative distribution function vs. an annual household income. Furthermore, the known stylised facts concerning this income are well described by our formula. Namely, the formula provides the Boltzmann-Gibbs income distribution function for the low-income society class and the weak Pareto law for the medium-income society class, as expected. Importantly, it predicts (to satisfactory approximation) the Zipf law for the high-income society class. Moreover, the region of medium-income society class is now distinctly reduced because the bottom of high-income society class is distinctly lowered. This reduction made, in fact, the mediumincome society class an intermediate-income society class.

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“…On the other hand, by eliminating the linear term of u in (10) for a given sign of u, the solution to the Fokker-Planck equation (8) fits the data on probability distribution of income or wealth [34][35][36], although amazingly, this type of probability distribution was first introduced in the 19th century, even before the introduction of the Fokker-Planck equation [37].…”

Section: Scalingmentioning

confidence: 99%