Unpacking Rising Inequality: The Roles of Markups, Taxes, and Asset Prices

Stéphane Auray (), Aurélien Eyquem (), Bertrand Garbinti () and Jonathan Goupille-Lebret ()
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Stéphane Auray: CREST-ENSAI and Rennes School of Business, Bruz, France
Aurélien Eyquem: Department of Economics, University of Lausanne, Switzerland
Bertrand Garbinti: CREST-ENSAE-Institut Polytechnique Paris, Palaiseau, France
Jonathan Goupille-Lebret: CNRS and ENS de Lyon (CERGIC), France

No 2025-09, Working Papers from Center for Research in Economics and Statistics

Abstract: We study the dynamics of income and wealth inequality using a heterogeneous-agent model that combines endogenous portfolio choice, a granular representation of the tax-andtransfer system, and a reduced-form mechanism linking markups to top incomes through entrepreneurial risk. Driven by changes in taxation, markups, and asset prices, the model accounts for the observed trends in income and wealth inequality in France since 1984, up to the top 1% income and wealth shares. We combine counterfactual simulations with a simple accounting decomposition of wealth accumulation to assess the contributions of these driving forces to inequality dynamics and to identify the channels through which they operate. We identify rising markups as the primary driver of income inequality, while all three forces– taxation, markups, and asset prices– contribute significantly to wealth inequality. Our findings highlight both the mechanical impact of differential asset price movements and the central role of endogenous saving responses in shaping wealth inequality over time.

Keywords: Heterogeneous Agents; Taxes; Market Power; Income Inequality; Wealth Inequality. (search for similar items in EconPapers)
JEL-codes: D4 E2 H2 O4 O52 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2025-05-22
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