Decomposing the Rise in Top Wealth Inequality

Matthieu Gomez
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Matthieu Gomez: Princeton University

No 1116, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: There has been a dramatic rise in top wealth inequality in the United States since 1980. This paper stresses the role of composition effects in driving this phenomenon. I first show an analytical formula that expresses the growth of top wealth shares as the sum of three terms: the relative wealth growth of individuals at the top, a term due to idiosyncratic wealth shocks, and a term due to population renewal. I propose an accounting decomposition to estimate each term from a panel data of wealthy individuals. I then apply this decomposition to the annual ranking of Forbes Magazine’s list of the 400 wealthiest Americans. This exercise reveals that the rise in the top 400 wealth share in 1982-1994 is mostly driven by an increase of the variance of idiosyncratic wealth shocks, while the rise in the top 400 wealth share in 1995-2015 is mostly driven by an increase of the wealth growth of individuals at the top.

Date: 2018
New Economics Papers: this item is included in nep-dem
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1116

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