IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19093.html
   My bibliography  Save this paper

Returns Heterogeneity and Consumption Inequality Over the Life Cycle

Author

Listed:
  • Daminato, Claudio
  • Pistaferri, Luigi

Abstract

A recent literature argues that persistent heterogeneity in wealth returns ("type dependence") as well as a positive association with wealth levels ("scale dependence") play an important role for explaining features of the wealth distribution, especially its extreme concentration at the top. In contrast, traditional models of wealth accumulation emphasize the role of persistent differences in labor earnings. Using panel data from the PSID, we first document that a common unobserved component (which we interpret as the endowment of cognitive and non-cognitive skills of an individual) drives persistent heterogeneity in both wealth returns and labor earnings. We embed these features of the joint wealth return-earnings process in a life-cycle model of consumer behavior and show that ignoring them would dramatically understate average returns for people at the top of the wealth distribution as well as the level and rise of consumption inequality over the life cycle.

Suggested Citation

  • Daminato, Claudio & Pistaferri, Luigi, 2024. "Returns Heterogeneity and Consumption Inequality Over the Life Cycle," CEPR Discussion Papers 19093, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19093
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19093
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19093. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.