Consumption, Wealth, and Income Inequality: A Tale of Tails
Alexandre Gaillard,
Christian Hellwig,
Philipp Wangner (pw2608@columbia.edu) and
Nicolas Werquin
No WP 2023-43, Working Paper Series from Federal Reserve Bank of Chicago
Abstract:
We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and magnitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concentration puzzle. We match the cross-sectional data on these four Pareto tails by positing a combination of non-homothetic, wealth-dependent preferences and scale-dependent returns to capital. We underscore the importance of these results by showing that all four dimensions of top inequality jointly determine the long-run elasticity that governs the revenue-maximizing capital tax rate.
Keywords: Spending; Consumption; Income Distribution; Modeling; Taxation and Subsidies; fiscal policies; Firm behavior (search for similar items in EconPapers)
JEL-codes: E21 E25 E27 H21 H32 (search for similar items in EconPapers)
Pages: 79
Date: 2023-12-05
New Economics Papers: this item is included in nep-pbe
References: Add references at CitEc
Citations:
Downloads: (external link)
https://doi.org/10.21033/wp-2023-43 (application/pdf)
Related works:
Working Paper: Consumption, Wealth, and Income Inequality: A Tale of Tails (2023)
Working Paper: Consumption, Wealth, and Income Inequality: A Tale of Tails (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:97521
Ordering information: This working paper can be ordered from
publications.chi@chi.frb.org
Access Statistics for this paper
More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese (lauren.wiese@chi.frb.org).