Why Are the Wealthiest So Wealthy? New Longitudinal Empirical Evidence and Implications for Theories of Wealth Inequality

Elin Halvorsen (), Joachim Hubmer, Serdar Ozkan and Sergio Salgado Ibáñez
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Elin Halvorsen: https://www.ssb.no/en/forskning/ansatte/elin-halvorsen

No 2024-013, Working Papers from Federal Reserve Bank of St. Louis

Abstract: CORRECT ORDER OF AUTHORS: Hubmer, Halvorsen, Salgado, Ozkan. We study the lifecycle dynamics of wealth inequality using 1993-2019 Norwegian administrative panel data on wealth and income. Employing a novel budget-constraint approach, we decompose the excess wealth of the top 0.1% households relative to the median between ages 45 and 64 into higher saving rates (36%), inheritances (31%), returns (28%), and labor income (5%). One quarter of the wealthiest—the “New Money”—start with negative wealth on average but accumulate rapidly through high labor income and exceptionally high saving rates and returns. The “Old Money” inherit substantial wealth and grow it through above-average though more modest saving and returns. We use these dynamic facts to evaluate five standard wealth inequality models. Although these models match cross-sectional wealth concentration, they fail to reproduce the distinct dynamics of New and Old Money. A heterogeneous entrepreneurship model with decreasing returns to scale technology and nonhomothetic preferences is consistent with the observed dynamics.

Keywords: wealth inequality; lifecycle wealth dynamics; rate of return heterogeneity; bequests; saving rate heterogeneity (search for similar items in EconPapers)
JEL-codes: D14 D15 E21 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2024-06-08, Revised 2026-01-13
New Economics Papers: this item is included in nep-dge and nep-fdg
Note: A related working paper is 2023-004: https://doi.org/10.20955/wp.2023.004
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Citations: View citations in EconPapers (1)

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DOI: 10.20955/wp.2024.013

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