Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Home
Hostname: page-component-544b6db54f-5rlvm Total loading time: 0.292 Render date: 2021-10-19T10:03:28.266Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }
  • English
Macroeconomic Dynamics Macroeconomic Dynamics

Article contents

WEALTH INEQUALITY: DATA AND MODELS

Published online by Cambridge University Press:  01 September 2008

Marco Cagetti  and
Mariacristina De Nardi
Marco Cagetti
Affiliation:
Board of Governors of the Federal Reserve System
Mariacristina De Nardi*
Affiliation:
Federal Reserve Bank of Chicago and NBER
*
Address correspondence to: Mariacristina De Nardi, Federal Reserve Bank of Chicago, Research Department, 230 South La Salle Street, Chicago, IL 60604, USA; e-mail: denardim@nber.org.
Get access Rights & Permissions[Opens in a new window]

Abstract

In the United States wealth is highly concentrated and very unequally distributed: the richest 1% hold one third of the total wealth in the economy. Understanding the determinants of wealth inequality is a challenge for many economic models. We summarize some key facts about the wealth distribution and what economic models have been able to explain so far.

Keywords

InequalitySavingsLife-Cycle Models
Type
Articles
Information
Macroeconomic Dynamics , Volume 12 , Supplement S2: Inequality , September 2008 , pp. 285 - 313
Copyright
Copyright © Cambridge University Press 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aiyagari, S. Rao (1994) Uninsured idiosyncratic risk and aggregate saving. Quarterly Journal of Economics 109, 659–684.CrossRefGoogle Scholar
Albuquerque, Rui and Hopenhayn, Hugo A. (2004) Optimal dynamic lending contracts with imperfect enforceability. Review of Economic Studies 71, 285–315.CrossRefGoogle Scholar
Altonji Joseph, G. and Doraszelski, Ulrich (2002) The Role of Permanent Income and Demographics in Black/White Differences in Wealth. Yale University, Economic Growth Center Discussion Papers.Google Scholar
Altonji Joseph, G. and Villanueva, Ernesto (2003) The Marginal Propensity to Spend on Adult Children. NBER working paper 9811.Google Scholar
Andreoni, James (1989) Giving with impure altruism: Applications to charity and Ricardian equivalence. Journal of Political Economy 97, 1447–1458.CrossRefGoogle Scholar
Antoniewicz Rochelle, L. (2000) A Comparison of the Household Sector from the Flow of Funds Accounts and the Survey of Consumer Finances. Mimeo, Federal Reserve Board, Occasional staff study.Google Scholar
Atkinson Anthony, B. (1971) The distribution of wealth and the individual life-cycle. Oxford Economic Papers 23, 239–254.CrossRefGoogle Scholar
Banerjee Abhijit, V. and Newman, Andrew F. (1993) Occupational choice and the process of development. Journal of Political Economy 102, 274–298.CrossRefGoogle Scholar
Banks, James, Blundell, Richard, and Smith, James P. (2003) Understanding differences in household financial wealth between the United States and Great Britain. Journal of Human Resources 38, 241–279.CrossRefGoogle Scholar
Becker, Gary and Tomes, Nigel (1979) Human capital and the rise and fall of families. Journal of Labor Economics 4, S1–S39.CrossRefGoogle Scholar
Benzoni, Luca, Collin-Dufresne, Pierre, and Goldstein, Robert S. (in press) Portfolio choice over the life-cycle when stock and labor markets are cointegrated. Journal of Finance.Google Scholar
Bernheim, B. Douglas, Skinner, Jonathan, and Weinberg, Steven (2001) What accounts for the variation in retirement wealth among U.S. households? American Economic Review 91, 832–857.CrossRefGoogle Scholar
Bertaut, Carol and Starr-McCluer, Martha (2002) Household portfolios in the United States. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios, pp. 181–217. Cambridge, MA: MIT press.Google Scholar
Bewley Truman, F. (1977) The permanent income hypothesis: A theoretical formulation. Journal of Economic Theory 16, 252–292.CrossRefGoogle Scholar
Browning, Martin, Hansen, Lars Peter, and Heckman, James (1999) Micro data and general equilibrium models. In Taylor, John and Woodford, Michael (eds.), Handbook of Macroeconomics, vol. 1A, pp. 543–633. Amsterdam: Elsevier.CrossRefGoogle Scholar
Browning, Martin and Lusardi, Annamaria (1996) Household saving: Micro theories and micro facts. Journal of Economic Literature 24, 1797–1855.Google Scholar
Budria Rodriguez, Santiago, Díaz-Giménez, Javier, Vincenzo, Quadrini, and Ríos-Rull, José-Victor (2002) Updated facts on the U.S. distributions of earnings, income, and wealth. Federal Reserve Bank of Minneapolis Quarterly Review 26, 2–35.Google Scholar
Buera, Francisco (2006) Persistency of Poverty, Financial Frictions, and Entrepreneurship. Working paper, Northwestern University.Google Scholar
Cagetti, Marco (2001) Interest elasticity in a life-cycle model with precautionary savings. American Economic Review 91, 418–421.CrossRefGoogle Scholar
Cagetti, Marco (2003) Wealth accumulation over the life cycle and precautionary savings. Journal of Business and Economic Statistics 21, 339–353.CrossRefGoogle Scholar
Cagetti, Marco and De Nardi, Mariacristina (2004) Taxation, Entrepreneurship and Wealth. Federal Reserve Bank of Minneapolis Staff Report 340.Google Scholar
Cagetti, Marco and De Nardi, Mariacristina (2006) Entrepreneurship, frictions, and wealth. Journal of Political Economy 114, 835–870.CrossRefGoogle Scholar
Campbell, John, Cocco, Joao, Gomez, Francisco, and Maenhout, Pascal (1999) Investing Retirement Wealth: A Life Cycle Model. Mimeo, Harvard University.CrossRefGoogle Scholar
Campbell John, Y. and Viceira, Luis (2002) Strategic Asset Allocation. New York: Oxford University Press.CrossRefGoogle Scholar
Carroll Christopher, D. (1997) Buffer stock saving and the life-cycle/permanent income hypothesis. Quarterly Journal of Economics 112, 1–55.CrossRefGoogle Scholar
Carroll Christopher, D. (2000) Why do the rich save so much? In Slemrod, Joel B. (ed.), Does Atlas Shrug? The Economic Consequences of Taxing the Rich, pp. 466–484. Cambridge, MA: Harvard University Press.Google Scholar
Carroll Christopher, D. (2002) Portfolios of the rich. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios, pp. 389–430. Cambridge, MA: MIT Press.Google Scholar
Castañeda, Ana, Díaz-Giménez, Javier, and José-Victor, Ríos-Rull (2003) Accounting for the U.S. earnings and wealth inequality. Journal of Political Economy 111, 818–857.CrossRefGoogle Scholar
Cunha, Flavio, Heckman, James J., and Navarro-Lozano, Salvador (2005) Separating heterogeneity from life-cycle earnings. Oxford Economic Papers 57, 191–261.CrossRefGoogle Scholar
Curtin, Richard T., Juster, F. Thomas, and Morgan, James N. (1989) Survey estimates of wealth: An assessment of quality. In Lipsey, Robert E. and Tice, Helen Stone (eds.), The Measurement of Saving, Investment and Wealth, Studies in Income and wealth, vol. 52, pp. 473–548. Chicago: University of Chicago Press.Google Scholar
Davies James, B. (1982) The relative impact of inheritance and other factors on economic inequality. Quarterly Journal of Economics 97, 471–498.CrossRefGoogle Scholar
Davies James, B. and Shorrocks, Anthony F. (2000) The distribution of wealth. In Atkinson, A.B. and Bourguignon, F. (eds.), Handbook of Income Distribution, pp. 605–675. Amsterdam: Elsevier.CrossRefGoogle Scholar
De Nardi, Mariacristina (2004) Wealth inequality and intergenerational links. Review of Economic Studies 71, 743–768.CrossRefGoogle Scholar
De Nardi, Mariacristina, French, Eric, and Jones, John B. (2006) Differential Mortality, Uncertain Medical Expenses, and the Saving of Elderly Singles. NBER working paper 12554.Google Scholar
Díaz, Antonia, Pijoan-Mas, Josep, and Ríos-Rull, José-Victor (2002) Habit formation: Implications for the wealth distribution. Journal of Monetary Economics 50, 1257–1291.CrossRefGoogle Scholar
Díaz-Giménez, Javier, Quadrini, Vincenzo, and Ríos-Rull, José-Victor (1997) Dimensions of inequality: Facts on the U.S. distributions of earnings, income and wealth. Federal Reserve Bank of Minneapolis Quarterly Review 21, 3–21.Google Scholar
Dynan, Karen, Skinner, Jonathan, and Zeldes, Stephen (2004) Do the rich save more? Journal of Political Economy 112, 397–444.CrossRefGoogle Scholar
Eichenbaum, Martin and Peled, Dan (1987) Capital accumulation and annuities in an adverse selection economy. Journal of Political Economy 95, 334–354.CrossRefGoogle Scholar
Engen, Eric M., Gale, William G., and Uccello, Cori R. (1999) The adequacy of household saving. Brookings Papers on Economic Activity, pp. 65–187.Google Scholar
Flavin, Marjorie and Yamashita, Takashi (2002) Owner-occupied housing and the composition of the household portfolio. American Economic Review 92, 345–362.CrossRefGoogle Scholar
Gale William, G. and Scholz, John Karl (1994) Intergenerational transfers and the accumulation of wealth. Journal of Economic Perspectives 8, 145–160.CrossRefGoogle Scholar
Gentry William, M. and Hubbard, R. Glenn (2004) Entrepreneurship and household savings. Advances in Economic Analysis and Policy 4, article 1.Google Scholar
Gokhale, Jagadeesh, Kotlikoff, Laurence J., Sefton, James, and Weale, Martin (2000) Simulating the transmission of wealth inequality via bequests. Journal of Public Economics 79, 93–128.CrossRefGoogle Scholar
Gollier, Christian (2002) What does theory have to say about household portfolios? In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios, pp. 27–54. Cambridge, MA: MIT Press.Google Scholar
Haliassos, Michael and Michaelides, Alexander (2002) Calibration and computation of household portfolio models. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios pp. 55–103. Cambridge, MA: MIT Press.Google Scholar
Heaton, John and Lucas, Deborah (2000) Portfolio choice and asset prices: The importance of entrepreneurial risk. Journal of Finance 55, 1163–1198.CrossRefGoogle Scholar
Heckman, James, Lochner, Lance, and Taber, Cristopher (1998) Explaining rising wage inequality: Explorations with a dynamic general equilibrium model. Review of Economic Dynamics 1, 1–58.CrossRefGoogle Scholar
Heer, Burkhard (1999) Wealth Distribution and Optimal Inheritance Taxation in Life-Cycle Economies with Intergenerational Transfers. Mimeo, University of Cologne, Germany.Google Scholar
Hendricks, Lutz (2004a) Accounting for Patterns of Wealth Inequality. Mimeo, Iowa State University.Google Scholar
Hendricks, Lutz (2004b) How Important Is Preference Heterogeneity for Wealth Inequality? Mimeo, Iowa State University.Google Scholar
Hubbard, R. Glenn, Skinner, Jonathan, and Zeldes, Stephen P. (1995) Precautionary saving and social insurance. Journal of Political Economy 103, 360–399.CrossRefGoogle Scholar
Huggett, Mark (1996) Wealth distribution in life-cycle economies. Journal of Monetary Economics 38, 469–494.CrossRefGoogle Scholar
Huggett, Mark, Ventura, Gustavo, and Yaron, Amir (2003) Human Capital and Earnings Distribution Dynamics. Mimeo, Georgetown University.Google Scholar
Hurd Michael, D. (1989) Mortality risk and bequests. Econometrica 57, 779–813.CrossRefGoogle Scholar
Hurd Michael, D. (2002) Portfolios of the elderly. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios, pp. 431–472. Cambridge, MA: MIT Press.Google Scholar
Hurst, Erik, Luoh, Ming Ching, and Stafford, Frank P. (1998) Wealth Dynamics of American Families, 1984–94. Brookings Papers on Economic Activity, pp. 267–337.Google Scholar
Jeong, Hyeok and Townsend, Robert M. (2005) Sources of TFP Growth: Occupational Choice and Financial Deepening. IEPR working paper Series.Google Scholar
Kaplan Steven, N. and Rauh, Joshua (2006) Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes. University of Chicago, CRSP working paper No. 615.Google Scholar
Kennickell Arthur, B. (2003) A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989–2001, Mimeo, Federal Reserve Board, occasional staff study.Google Scholar
Kopczuk, Wojciech and Saez, Emmanuel (2004) Top wealth shares in the United States, 1916–2000: Evidence from estate tax returns. National Tax Journal 57, 445–487.CrossRefGoogle Scholar
Kotlikoff Laurence, J. and Summers, Lawrence H. (1981) The role of intergenerational transfers in aggregate capital accumulation. Journal of Political Economy 89, 706–732.CrossRefGoogle Scholar
Krusell, Per and Smith, Anthony Jr., (1998) Income and wealth heterogeneity in the macroeconomy. Journal of Political Economy 106, 867–896.CrossRefGoogle Scholar
Laibson, David I., Repetto, Andrea, and Tobacman, Jeremy (1998) Self control and retirement savings. Brookings Papers on Economic Activity 1, 91–172.CrossRefGoogle Scholar
Laitner, John (1992) Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers. Journal of Economic Theory 58, 135–170.CrossRefGoogle Scholar
Laitner, John (2001) Secular changes in wealth inequality and inheritance. Economic Journal 111, 691–721.CrossRefGoogle Scholar
Laitner, John and Juster, Thomas F. (1996) New evidence on altruism, a study of TIAA-CREF retirees. American Economic Review 86, 893–908.Google Scholar
Lawrance, Emily (1991) Poverty and the rate of time preference: Evidence from panel data. Journal of Political Economy 99, 54–77.CrossRefGoogle Scholar
Lillard Lee, A. and Karoly, Lynn A. (1997) Income and Wealth Accumulation over the Life-Cycle. Manuscript, RAND Corporation.Google Scholar
Lindert Peter, H. (2000) When did inequality rise in Britain and America? Journal of Income Distribution 9, 11–25.CrossRefGoogle Scholar
Ljungqvist, Lars and Sargent, Thomas J. (2000) Recursive Macroeconomic Theory. Boston: MIT Press.Google Scholar
Love, David, Smith, Paul, and McNair, Lucy (2006) Is There a Savings Crisis? Measuring the Adequacy of Household Retirement Wealth. Working paper, Williams College.Google Scholar
Lucas, Robert E. Jr. (1978) On the size distribution of business firms. The Bell Journal of Economics 9, 508–523.CrossRefGoogle Scholar
Lusardi, Annamaria (2000) Explaining Why So Many Households Do Not Save. Mimeo, Dartmouth College.Google Scholar
Meh, Cesaire (2005) Entrepreneurship, wealth inequality, and taxation. Review of Economic Dynamics 8, 688–719.CrossRefGoogle Scholar
Miniaci, Raffaele and Weber, Guglielmo (2002) Econometric issues in the estimation of household portfolio models. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), pp. 143–178. Cambridge, MA: MIT Press.Google Scholar
Modigliani, Franco and Blumberg, Richard (1954) Utility analysis and the consumption function: An interpretation of cross-sectional data. In Kurihara, Kenneth K. (ed.), Post-Keynesian Economics, pp. 388–436. New Brunswick, NJ: Rutgers University Press.Google Scholar
Nishiyama, Shinichi (2002) Bequests, inter vivos transfers, and wealth distribution. Review of Economic Dynamics 5, 892–931.CrossRefGoogle Scholar
Palumbo Michael, G. (1999) Uncertain medical expenses and precautionary savings near the end of the life cycle. Review of Economic Studies 66, 395–421.CrossRefGoogle Scholar
Paulson Anna, L. and Townsend, Robert (2004) Entrepreneurship and financial constraints in Thailand. Journal of Corporate Finance 10, 229–262.CrossRefGoogle Scholar
Piketty, Thomas, Postel-Vinay, Gilles, and Rosenthal, Jean Laurent (2006) Wealth concentration in a developing economy, Paris and France, 1807–1994. American Economic Review 96, 236–256.CrossRefGoogle Scholar
Piketty, Thomas and Saez, Emmanuel (2003) Income inequality in the United States, 1913–1998. Quarterly Journal of Economics 118, 1–39.CrossRefGoogle Scholar
Poterba James, M. (2002) Taxation and portfolio structure: Issues and implications. In Guiso, Luigi, Haliassos, Michael, and Jappelli, Tullio (eds.), Household Portfolios, pp. 103–142, Cambridge, MA: MIT Press.Google Scholar
Poterba James, M. and Samwick, Andrew A. (1997) Household Portfolio Allocation over the Life-Cycle. NBER working paper 6185.Google Scholar
Quadrini, Vincenzo (1999) The importance of entrepreneurship for wealth concentration and mobility. Review of Income and Wealth 45, 1–19.CrossRefGoogle Scholar
Quadrini, Vincenzo (2000) Entrepreneurship, saving, and social mobility. Review of Economic Dynamics 3, 1–40.CrossRefGoogle Scholar
Quadrini, Vincenzo and Ríos-Rull, José-Victor (1997) Models of the distribution of wealth. Federal Reserve Bank of Minneapolis Quarterly Review 21, 1–21.Google Scholar
Saez, Emmanuel (2006) Income and wealth concentration in a historical and international perspective, In Auerbach, Alan, Card, David, and Quigley, John (eds.), Public Policy and the Income Distribution. New York: Russell Sage Foundation.Google Scholar
John Karl, Scholz (2003) Wealth Inequality and the Wealth of Cohorts. Mimeo.Google Scholar
John Karl, Scholz, Seshadri, Ananth, and Khitatrakun, Surachai (2006) Are Americans saving optimally for retirement? Journal of Political Economy 114, 607–643.Google Scholar
Smith James, P. (1995) Racial and ethnic differences in wealth in the health and retirement study. Journal of Human Resources 30, S158–S183, supplement.CrossRefGoogle Scholar
Soltow, Lee (1984) Wealth inequality in the United States in 1798 and 1860. Review of Economic and Statistics 66, 444–451.CrossRefGoogle Scholar
Storesletten, Kjetil, Telmer, Chris, and Yaron, Amir (1999) Asset Pricing with Idiosyncratic Risk and Overlapping Generations. Stockholm University, Institute for International Economic Studies, Seminar Papers Series 703.Google Scholar
Venti Steven, F. and Wise, David A. (1988) The cause of wealth dispersion at retirement: Choice or chance? American Economic Review 88, 185–191.Google Scholar
White, Kirk (2003) Initial Conditions at Emancipation: The Long Run Effect on Black–White Wealth and Income Inequality. Mimeo, Duke University.Google Scholar
Wolff Edward, N. (1987) Estimates of wealth inequality in the U.S., 1962–1983. Review of Income and Wealth 33, 231–256.CrossRefGoogle Scholar
Wolff Edward, N. (1992) Changing inequality of wealth. American Economic Review 82, 552–558.Google Scholar
Wolff Edward, N. (1996) International comparisons in wealth inequality. Review of Income and Wealth 42, 433–451.CrossRefGoogle Scholar
Wolff Edward, N. (1998) Recent trends in the size distribution of household wealth. Journal of Economic Perspectives 12, 131–150.CrossRefGoogle Scholar
Wolff Edward, N. and Marley, Marcia (1989) Long term trends in U.S. wealth inequality: Methodological issues and results. In Lipsey, Robert E. and Tice, Helen Stone (eds.), The Measurement of Saving, Investment and Wealth, Studies in Income and wealth, vol. 52, pp. 765–844. Chicago: University of Chicago Press.Google Scholar
Wolfson, Michael (1977) The Causes of Inequality in the Distribution of Wealth: A Simulation Analysis. Ph.D. Thesis, Cambridge University.Google Scholar
Yang, Fang (2005a) Accounting for Heterogeneity in Retirement Wealth. Federal Reserve Bank of Minneapolis working paper 638.Google Scholar
Yang, Fang (2005b) Consumption along the Life-Cycle: How Different Is Housing. Federal Reserve Bank of Minneapolis working paper 635.Google Scholar
Yang, Fang (2006) How Do Household Portfolios Vary with Age? Mimeo, University of Minnesota.Google Scholar
Yao, Rui and Zhang, Harold H. (2004) Optimal consumption and portfolio choices with risky housing and borrowing constraints. Review of Financial Studies 18, 197–239.CrossRefGoogle Scholar
81
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

WEALTH INEQUALITY: DATA AND MODELS
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

WEALTH INEQUALITY: DATA AND MODELS
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

WEALTH INEQUALITY: DATA AND MODELS
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *