Reparations and Persistent Racial Wealth Gaps

Job Boerma and Loukas Karabarbounis

No 15796, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze the magnitude and persistence of the racial wealth gap using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous beliefs about risky returns, reflecting differences in dynasties' investment experiences over time. Feeding the exclusion of Black dynasties from labor and capital markets into the model as the only driving force, we find that the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We explore how the future trajectory of the racial wealth gap might change in response to various policies. Wealth transfers to all Black dynasties that eliminate the average wealth gap today do not lead to long-run wealth convergence. The logic is that centuries-long exclusions lead Black dynasties to hold pessimistic beliefs about risky returns and to forgo investment opportunities after the wealth transfer. Investment subsidies toward Black entrepreneurs are more effective than wealth transfers in permanently eliminating the racial wealth gap.

Keywords: Reparations; Race gaps; Wealth; entrepreneurship; beliefs (search for similar items in EconPapers)
JEL-codes: D31 E21 J15 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-ent and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Reparations and Persistent Racial Wealth Gaps (2023)
Chapter: Reparations and Persistent Racial Wealth Gaps (2022)
Working Paper: Reparations and Persistent Racial Wealth Gaps (2021)
Working Paper: Reparations and Persistent Racial Wealth Gaps (2021)
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