Heterogeneity and Persistence in Returns to Wealth / Andreas Fagereng, Luigi Guiso, Davide Malacrino, Luigi Pistaferri.

Format:

Book

Author/Creator:

Fagereng, Andreas.

Contributor:

Guiso, Luigi.

Malacrino, Davide.

Pistaferri, Luigi.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22822.

NBER working paper series no. w22822

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

We provide a systematic analysis of the properties of individual returns to wealth using twenty years of population data from Norway's administrative tax records. We document a number of novel results. First, in a given cross-section, individuals earn markedly different returns on their assets, with a difference of 500 basis points between the 10th and the 90th percentile. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth. Fourth, returns have an individual permanent component that accounts for 60% of the explained variation. Fifth, for wealth below the 95th percentile, the individual permanent component accounts for the bulk of the correlation between returns and wealth; the correlation at the top reflects both compensation for risk and the correlation of wealth with the individual permanent component. Finally, the permanent component of the return to wealth is also (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Notes:

Print version record

November 2016.