Returns Heterogeneity and Consumption Inequality Over the Life Cycle

Claudio Daminato and Luigi Pistaferri

No 32490, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A recent literature argues that persistent heterogeneity in wealth returns ("type dependence") as well as a positive association with wealth levels ("scale dependence") play an important role for explaining features of the wealth distribution, especially its extreme concentration at the top. In contrast, traditional models of wealth accumulation emphasize the role of persistent differences in labor earnings. Using panel data from the PSID, we first document that a common unobserved component (which we interpret as the endowment of cognitive and non-cognitive skills of an individual) drives persistent heterogeneity in both wealth returns and labor earnings. We embed these features of the joint wealth return-earnings process in a life-cycle model of consumer behavior and show that ignoring them would dramatically understate average returns for people at the top of the wealth distribution as well as the level and rise of consumption inequality over the life cycle.

JEL-codes: E21 G51 J24 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-dge, nep-lma and nep-neu
Note: EFG
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32490.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:32490

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32490
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().