Wealth and income inequality in the long run

Philipp Lieberknecht and Philip Vermeulen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper analyses the joint long-run evolution of wealth and income inequality. We show that top wealth and income shares were cointegrated over the past century in France and the US. We rationalise this finding using a two-agent version of the Solow growth model. In this framework, the co-movement of top wealth and income shares is determined by the relative saving rate at the top, i.e. the ratio of the saving rate of rich individuals to the aggregate saving rate. The cointegration finding suggests that relative saving rates at the top are fairly stable over time, thus explaining the tight co-movement between top wealth and income shares over the past century.

Keywords: Income inequality; wealth inequality; top shares; saving rates; cointegration; error correction. (search for similar items in EconPapers)
JEL-codes: D31 E21 E25 N32 N34 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-05
New Economics Papers: this item is included in nep-gro, nep-his and nep-mac
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https://cama.crawford.anu.edu.au/sites/default/fil ... knecht_vermeulen.pdf (application/pdf)

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Working Paper: Wealth and income inequality in the long run (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2022-37

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