Stochastic dominance and thick-tailed wealth distributions

Christian Pietro () and Marco Sorge
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Christian Pietro: University of Salerno

Journal of Economics, 2018, vol. 123, issue 2, No 2, 159 pages

Abstract: Abstract Right-skewed and thick-tailed wealth distributions have been documented as an empirical regularity across space and time. A key mechanism for explaining these distributional features is proportional random growth. We investigate the comparative statics of a well-defined class of random growth models when allowing for stochastically ordered shifts in the wealth return process. An order-contingent monotone comparative statics property is identified, according to which pure increases in risk (e.g. higher volatility of capital returns) foster top wealth concentration whereas first-order stochastically dominated shifts in the return process (induced by e.g. proportional capital income taxation) rather lower inequality at the upper end of the distribution. Our analysis points to the potentially ambiguous effects on top wealth inequality of introducing or modifying capital income tax treatments in the presence of stochastic returns.

Keywords: Wealth distribution; Thick tails; Stochastic dominance ordering (search for similar items in EconPapers)
JEL-codes: D31 D81 E21 E24 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:123:y:2018:i:2:d:10.1007_s00712-017-0544-6

DOI: 10.1007/s00712-017-0544-6

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