Explaining Income and Wealth Inequality over the Long Run: The Case of France

Stéphane Auray, Aurélien Eyquem, Bertrand Garbinti and Jonathan Goupille-Lebret

No 2210, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We build an original heterogeneous-agent model with three assets (deposits, housing and equity), labor-income risk, entrepreneurs, and a rich and realistic set of flat and progressive taxes and transfers. Using France as an illustration, the model fits the level and dynamics of wealth and income inequalities, the aggregate and distributional tax structure, the composition of wealth along the distribution as well as key macroeconomic aggregates over the 1984-2018 period. Rising markups account for the bulk of rising income inequality. Wealth inequality dynamics result mostly from changes in saving rate inequality but only in response to the exogenous changes in taxation and markups. Our results point to the critical importance of endogenous saving decisions in response to exogenous shocks as a key driver of wealth inequality.

Keywords: Heterogeneous Agents; Taxes; Market Power; Income Inequality; Wealth Inequality (search for similar items in EconPapers)
JEL-codes: D4 E2 H2 O4 O52 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-dge and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: MARKUPS, TAXES, AND RISING INEQUALITY (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2210

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