Where does wealth come from?

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 23.03.2021, 14:00 - 15:15

   

Presentation by 

Sandra E. Black (Columbia University)
   

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https://us02web.zoom.us/j/87487213161

Meeting ID: 874 8721 3161

   

Abstract:

Much attention has been given to rising wealth inequality in recent decades. However, understandinginequality requires an understanding of how wealth relates to the potential wealth an individual couldaccumulate and where this wealth comes from. Using administrative data from Norway, we createmeasures of potential wealth that abstract from differential consumption and spending behavior. Wethen examine how these measures relate to observed net wealth of individuals at a point in time andthe role played by different sources of wealth in the distribution of potential wealth. We find that netwealth 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 fromvery different sources. Labor income is the most important determinant of wealth, except among thetop 1%, where capital income and capital gains on financial assets become important. Inheritancesand 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 ofwealthy parents accumulate wealth from very different sources than children of less wealthy parents

   
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