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Heterogeneity and Persistence in Returns to Wealth

Andreas Fagereng (), Luigi Guiso, Davide Malacrino and Luigi Pistaferri

No 7107, CESifo Working Paper Series from CESifo Group Munich

Abstract: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Keywords: wealth inequality; returns to wealth; financial wealth; net worth; heterogeneity; intergenerational mobility (search for similar items in EconPapers)
JEL-codes: D31 D91 E21 E24 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27) Track citations by RSS feed

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Related works:
Working Paper: Heterogeneity and persistence in returns to wealth (2019) Downloads
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2018) Downloads
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016) Downloads
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016) Downloads
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016) Downloads
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