Skewed Wealth Distributions: Theory and Empirics

Benhabib, Jess; Bisin, Alberto

doi:10.1257/jel.20161390

Cited by 200 publications

(133 citation statements)

References 143 publications

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“…Heterogeneity in returns to wealth may solve the puzzle of why two countries with very different levels of concentration of income at the top may nevertheless have similar levels of wealth concentration at the top. Surveying the theories of skewed wealth distributions, Benhabib and Bisin () revisit and put in a novel perspective two theorems, one by Grey () and another by Kesten (). Grey's theorem asserts that, in an economy with homogeneous returns to wealth and heterogeneous income, the wealth distribution inherits the properties of the income distribution, including the thickness of its tails.…”

Section: Discussionmentioning

confidence: 99%

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Heterogeneity and Persistence in Returns to Wealth

Fagereng

Guiso

Malacrino

et al. 2020

ECTA

281

104

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We provide a systematic analysis of the properties of individual returns to wealth using 12 years of population data from Norway's administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net-of-tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

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Section: Discussionmentioning

confidence: 99%

“… For instance, while the calibrated model of Kindermann and Krueger () comes close to matching the distribution of wealth in the US, it requires the top 0.25% of income earners to earn 400 to 600 times more than the median earner; in the data the income of the top 0.25% is at most 34 times median income (Benhabib and Bisin ()). …”

mentioning

confidence: 99%

Heterogeneity and Persistence in Returns to Wealth

Fagereng

Guiso

Malacrino

et al. 2020

ECTA

281

104

View full text Add to dashboard Cite

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“…For example, Fagiolo et al (2010) report that consumption expenditures obey the AEP distribution, while Bottazzi et al (2014) and Reichstein and Jensen (2005) discuss applications to the firm size and growth rate distribution, respectively. Skewed and thick-tailed distributions are also observed for earnings and wealth (Benhabib and Bisin, 2018) as well as for the returns to total wealth, and it would certainly be worthwhile to investigate the implication of the distributional regularity in the latter on the dynamics of inequality. This would require to study the process governing the returns under the observed asymmetry.…”

Section: Discussionmentioning

confidence: 99%

Asymmetric competition, risk, and return distribution

Mundt

2019

Economics Letters

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractWe propose a parsimonious statistical model of firm competition where structural differences in the strength of competitive pressure and the magnitude of return fluctuations above and below the system-wide benchmark translate into a skewed Subbotin or asymmetric exponential power (AEP) distribution of returns to capital. Empirical evidence from US data illustrates that the AEP distribution compares favorably to popular alternative models such as the symmetric or asymmetric Laplace density in terms of goodness of fit when entry and exit dynamics of markets are taken into account.

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“…The distribution becomes more skewed, because agents that escape from the nonparticipation threshold at a young age accumulate wealth at a faster rate than those that have to exit asset markets occasionally and those that begin to participate persistently at a later stage, despite of rebalancing their portfolios towards safer assets as financial wealth increases. Interestingly, the model therefore provides an intuitive explanation for both the disproportionately high share of wealth held by financial market participants highlighted in Guvenen () and the skew of the wealth distribution discussed in Benhabib and Bisin (). The mode of the wealth distribution shifts slightly faster in the model than in the data, however, the evolution of the mean is almost precisely captured as can be seen from Figure .…”

Section: Simulationsmentioning

confidence: 93%

Long‐term government debt and household portfolio composition

Tischbirek

2019

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Formal dynamic analyses of household portfolio choice in the literature focus on holdings of equity and a risk-free asset or bonds of different maturities, neglecting the interdependence of the decisions to invest in equity, short-term and longterm bonds made by households. Data from the Survey of Consumer Finances is used to derive stylized facts about participation in the long-term governmentdebt market and conditional portfolio shares. To explain the mechanisms underlying these facts, I draw on a life-cycle model in which investors have access to three financial assets-equity, long-term debt, and a riskless short-term bondand are exposed to uninsurable idiosyncratic risk through nonfinancial income as well as aggregate risk through the asset returns. An application shows that the low Treasury returns observed in the US between 2009 and 2013 have quantitatively significant yet transitory effects on the composition of household portfolios. In combination with the observed rise in stock returns, they lead to persistent changes in the participation rate, the conditional portfolio shares, and the distribution of wealth.

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Skewed Wealth Distributions: Theory and Empirics

Cited by 200 publications

References 143 publications

Heterogeneity and Persistence in Returns to Wealth

Heterogeneity and Persistence in Returns to Wealth

Asymmetric competition, risk, and return distribution

Long‐term government debt and household portfolio composition

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