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Left and right: a tale of two tails of the wealth distribution

Author

Listed:
  • Marcello D’Amato

    (University of Napoli Suor Orsola Benincasa
    CSEF)

  • Christian Di Pietro

    (University of Napoli Parthenope
    CRISEI)

  • Marco M. Sorge

    (CSEF
    University of Salerno)

Abstract

We study a model of wealth accumulation in altruistic lineages, in which households face uninsurable risk, investment indivisibilities and borrowing constraints. A thick upper tail of the stationary distribution of wealth is shown to emerge as a robust prediction, irrespective of (1) the presence of multidimensional (wealth and ability) heterogeneity and non-convexities in human capital formation, and (2) the nature of parental bequest motives (joy-of-giving vs. paternalism). Additionally, (3) we identify conditions under which the unique, ergodic wealth distribution exhibits a mass point at the bottom of its support, where credit market imperfections continue to affect, along the convergence process, the structure of wealth transitions at the lineage level. Motivated by these results, we then analyze the sensitivity of the left tail to various frictions and fiscal instruments that affect bequest strategies and the ensuing transmission of wealth across generations. In particular, capital income or bequest taxes with no redistribution may reinforce economic mechanisms underpinning mobility traps in the left tail, thereby increasing the persistence of households in the lowest tiers of the wealth distribution.

Suggested Citation

  • Marcello D’Amato & Christian Di Pietro & Marco M. Sorge, 2024. "Left and right: a tale of two tails of the wealth distribution," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1389-1433, December.
    • Handle: RePEc:spr:joecth:v:78:y:2024:i:4:d:10.1007_s00199-024-01581-w
    DOI: 10.1007/s00199-024-01581-w
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    More about this item

    Keywords

    Wealth distribution; Wealth inequality; Capital income risk; Credit market imperfections; Educational investment;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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