How Important is Discount Rate Heterogeneity for Wealth Inequality?

Lutz Hendricks

No 1604, CESifo Working Paper Series from CESifo

Abstract: This paper investigates the role of discount rate heterogeneity for wealth inequality. The key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality. The contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life-cycle model. I find that discount rate heterogeneity increases the Gini coefficient of wealth by 0.06 to 0.11. The share of wealth held by the richest 1% of households rises by 0.03 to 0.13. The larger changes occur when altruistic bequests are large and when preferences are strongly persistent across generations. Discount rate heterogeneity also helps account for the large wealth inequality observed among households with similar lifetime earnings.

Keywords: wealth inequality; preference heterogeneity (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: How important is discount rate heterogeneity for wealth inequality? (2007)
Working Paper: How Important Is Discount Rate Heterogeneity for Wealth Inequality? (2006)
Working Paper: How Important is Discount Rate Heterogeneity for Wealth Inequaltity (1970)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1604

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