Where Does Wealth Come From?

Sandra Black, Paul Devereux, Fanny Landaud and Kjell G Salvanes

No 28239, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Much attention has been given to rising wealth inequality in recent decades. However, understanding inequality requires an understanding of how wealth relates to the potential wealth an individual could accumulate and where this wealth comes from. Using administrative data from Norway, we create measures of potential wealth that abstract from differential consumption and spending behavior. We then examine how these measures relate to observed net wealth of individuals at a point in time and the role played by different sources of wealth in the distribution of potential wealth. We find that net wealth is a reasonable proxy for potential wealth, particularly in the tails of the distribution. Importantly, people in different parts of the potential wealth (or actual net wealth) distribution get their wealth from very different sources. Labor income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets become important. Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution. Finally, although inheritances are not important, parental wealth does influence child’s wealth; children of wealthy parents accumulate wealth from very different sources than children of less wealthy parents.

JEL-codes: G51 J01 J1 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-eur, nep-lab and nep-ltv
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