 A Model of economic mobility and the distribution of wealthJournal of Macroeconomics, 2016, vol. 50, issue C, 168-192 Abstract: This paper introduces new techniques to obtain a closed-form rank-by-rank characterization of the equilibrium distribution of wealth in a model in which finitely lived households face uninsurable idiosyncratic investment risk. A central result is that the extent of inequality is determined entirely by two factors. The first factor, household exposure to idiosyncratic investment risk, increases inequality. The second factor, cross-sectional mean reversion of household wealth, decreases inequality. We show that economic mobility is decreasing in inequality and increasing in mean reversion, a result that is consistent with recent empirical observations about the geographic variation in mobility that exists both domestically and internationally. Our approach allows us to examine the implications of increased market completeness in the form of a risk-sharing subgroup of households. We show that a risk-sharing subgroup rises or falls in the equilibrium wealth distribution depending on the level of inequality, and that its presence raises welfare and the rate of wealth accumulation for all households in the economy. Keywords: Wealth distribution; Inequality; Incomplete markets; Mobility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:50:y:2016:i:c:p:168-192 DOI: 10.1016/j.jmacro.2016.09.008 Access Statistics for this article Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos More articles in Journal of Macroeconomics from Elsevier |
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