The Great Leveler According to HANK

Ralph Luetticke, Timothy Meyer, Müller, Gernot and Moritz Schularick

No 20943, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Using historical income and wealth data, we show that war reduces inequality: the top-1% income share falls by 20% and the top-1% wealth share by 10%. We measure three key drivers of inequality-capital destruction, taxation, and inflation-in the data and quantify their role with a Heterogeneous Agent New Keynesian (HANK) model. Destruction depresses profits and thus top incomes. Taxation primarily influences wealth dynamics, while inflation has little effect on top shares, but reduces indebtedness among poorer households. We validate our findings using new data on inequality across German towns in World War 2 and cross-country data on profits.

Keywords: Inequality; Distribution; Inflation; Taxes (search for similar items in EconPapers)
JEL-codes: E50 F40 F50 (search for similar items in EconPapers)
Date: 2025-12
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