Pareto-Improving Redistribution of Wealth - The Case of the NLSY 1979 Cohort

Klaus Wälde

No 1610, Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz

Abstract: We quantify a model of idiosyncratic labour income and idiosyncratic interest rates to perfectly match the evolution of the wealth distribution of the NLSY 79 cohort from 1986 to 2008. Given a simple and plausible labour income process with a posi- tive growth rate of labour income, the crucial feature is an ex-ante heterogeneity in interest rate distributions and an interest rate that ?uctuates between two values. One value lies below and one above the threshold level that implies a stationary long-run wealth distribution. We propose an "investment insurance" which, if im- plemented in 1986, would have reduced wealth inequality of the NLSY 79 cohort in 2008 by 23%. It would also have increased ex-ante welfare and would even have increased average wealth in 2008 by 38%. The economic rationale behind this sur- prising ?nding that everybody becomes richer through an inequality-reducing policy intervention is explained.

Keywords: dynamics of wealth distributions; NLSY 1979 cohort; capital income risk; redistribution; insurance; Fokker-Planck equations (search for similar items in EconPapers)
JEL-codes: C02 D31 E21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-04-26
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://download.uni-mainz.de/RePEc/pdf/Discussion_Paper_1610.pdf First version, 2016 (application/pdf)

Related works:
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:jgu:wpaper:1610

Access Statistics for this paper

More papers in Working Papers from Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit IPP ().