Income Inequality and Asset Prices

Agnieszka Markiewicz ()

No 1016, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We study the relationship between income inequality and stock market returns. We develop a quantitative general equilibrium model that includes two groups of agents: top 10% income group (capital owners) and workers who consume their after-tax labor income. Inequality in the model arises from two sources: capital and labor, and its increase is modeled as growth in the capital owners' capital and labor shares of income. The model and the data predict positive relationship between capital income inequality and real equity returns and negative relationship between labor income inequality and real equity returns. We find that real cumulative return on ex-dividend S&P 500 index would have been lower by 40% if there was no rise in capital income inequality. If the labor share of top decile would not grow, the same S&P 500 index would have experienced cumulative growth higher by 32%. The effects of capital and labor incomes' changes partially offset each other, and S&P 500 index displays a cumulative increase of 290% between 1970 and 2014 and 275% if there was no increase in income inequality.

Date: 2017
New Economics Papers: this item is included in nep-dge and nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2017/paper_1016.pdf (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:red:sed017:1016

Access Statistics for this paper

More papers in 2017 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().