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How wealthy are the rich?

Jan Schulz and Mishael Milaković

No 166, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: Underreporting and undersampling biases in top tail wealth, although widely acknowledged, have not been statistically quantified so far, essentially because they are not readily observable. Here we exploit the functional form of power law-like regimes in top tail wealth to derive analytical expressions for these biases, and employ German microdata from a popular survey and rich list to illustrate that tiny differences in non-response rates lead to tail wealth estimates that differ by an order of magnitude, in our case ranging from one to nine trillion euros. Underreporting seriously compounds the problem, and we find that the estimation of totals in scale-free systems oftentimes tends to be spurious. Our findings also suggest that recent debates on the existence of scale- or type-dependence in returns to wealth are ill-posed because the available data cannot discriminate between scale- or typedependence on the one hand, and statistical biases on the other. Yet both economic theory and mathematical formalism indicate that sampling and reporting biases are more plausible explanations for the observed data than scale- or type-dependence.

Keywords: Wealth inequality; stochastic growth; differential non-response; Hill estimator; tail index bias (search for similar items in EconPapers)
JEL-codes: C46 C81 D31 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cwa and nep-ecm
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bamber:166

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