IDEAS home Printed from https://ideas.repec.org/p/hhs/nhheco/2010_009.html
   My bibliography  Save this paper

Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures

Author

Listed:
  • Almås, Ingvild

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Mogstad, Magne

    (Statistics Norway)

Abstract

Differences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross-section data, a concern is that one confuses older with wealthier. We propose a new method to adjust for age effects in cross-sections, which eliminates wealth inequality due to age, yet preserves inequality arising from other factors. Using a new cross-country comparable database, we examine the impact of age adjustments on wealth inequality across countries and over time. We find that the most widely used method yield a substantially different picture of age adjusted wealth inequality than our method.

Suggested Citation

  • Almås, Ingvild & Mogstad, Magne, 2010. "Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures," Discussion Paper Series in Economics 9/2010, Norwegian School of Economics, Department of Economics.
    • Handle: RePEc:hhs:nhheco:2010_009
    as

    Download full text from publisher

    File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2fsam%2fDiscussion+papers%2f2010%2f09.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lutz Hendricks, 2007. "Retirement Wealth And Lifetime Earnings," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 421-456, May.
    2. Richard V. Burkhauser & John G. Poupore, 1997. "A Cross-National Comparison Of Permanent Inequality In The United States And Germany," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 10-17, February.
    3. repec:bla:revinw:v:43:y:1997:i:2:p:153-71 is not listed on IDEAS
    4. Bossert W., 1996. "Redistribution mechanisms based on individual characteristics," Mathematical Social Sciences, Elsevier, vol. 31(1), pages 51-51, February.
    5. repec:bla:econom:v:63:y:1996:i:250:p:s63-85 is not listed on IDEAS
    6. Peter J. Lambert & Andre' Decoster, 2005. "The Gini coefficient reveals more," Metron - International Journal of Statistics, Dipartimento di Statistica, Probabilità e Statistiche Applicate - University of Rome, vol. 0(3), pages 373-400.
    7. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 2005. "Explaining the wealth holdings of different cohorts: Productivity growth and Social Security," European Economic Review, Elsevier, vol. 49(5), pages 1361-1391, July.
    8. David Domeij & Paul Klein, 2002. "Private Pensions: To What Extent Do They Account for Swedish Wealth Inequality?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 503-534, July.
    9. Lambert, Peter J & Aronson, J Richard, 1993. "Inequality Decomposition Analysis and the Gini Coefficient Revisited," Economic Journal, Royal Economic Society, vol. 103(420), pages 1221-1227, September.
    10. Almås, Ingvild & Havnes, Tarjei & Mogstad, Magne, 2011. "Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967{2004," Discussion Paper Series in Economics 6/2010, Norwegian School of Economics, Department of Economics.
    11. Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September.
    12. Johnson, William R, 1977. "The Measurement and Trend of Inequality: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 502-504, June.
    13. Cesaire Meh, 2005. "Entrepreneurship, Wealth Inequality, and Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 688-719, July.
    14. Rolf Aaberge & Anders Björklund & Markus Jäntti & Mårten Palme & Peder J. Pedersen & Nina Smith & Tom Wennemo, 2002. "Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(4), pages 443-469, December.
    15. Paglin, Morton, 1989. "On the Measurement and Trend of Inequality: Reply," American Economic Review, American Economic Association, vol. 79(1), pages 265-266, March.
    16. Kurien, C John, 1977. "The Measurement and Trend of Inequality: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 517-519, June.
    17. Paglin, Morton, 1975. "The Measurement and Trend of Inequality: A Basic Revision," American Economic Review, American Economic Association, vol. 65(4), pages 598-609, September.
    18. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    19. Minarik, Joseph J, 1977. "The Measurement and Trend of Inequality: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 513-516, June.
    20. Christian Gollier, 2001. "Wealth Inequality and Asset Pricing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(1), pages 181-203.
    21. Peter H. Friesen & Danny Miller, 1983. "Annual Inequality and Lifetime Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 139-155.
    22. repec:bla:revinw:v:42:y:1996:i:4:p:433-51 is not listed on IDEAS
    23. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
    24. Almås, Ingvild & Cappelen, Alexander W. & Lind, Jo Thori & Sørensen, Erik Ø. & Tungodden, Bertil, 2011. "Measuring unfair (in)equality," Journal of Public Economics, Elsevier, vol. 95(7), pages 488-499.
    25. Marc Fleurbaey & Walter Bossert, 1996. "Redistribution and compensation (*)," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 13(3), pages 343-355.
    26. Edward N. Wolff, 1996. "International Comparisons Of Wealth Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(4), pages 433-451, December.
    27. Nelson, Eric R, 1977. "The Measurement and Trend of Inequality: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 497-501, June.
    28. Pudney, Stephen, 1993. "Income and Wealth Inequality and the Life Cycle: A Non-parametric Analysis for China," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 249-276, July-Sept.
    29. Marco Manacorda & Enrico Moretti, 2006. "Why do Most Italian Youths Live with Their Parents? Intergenerational Transfers and Household Structure," Journal of the European Economic Association, MIT Press, vol. 4(4), pages 800-829, June.
    30. James Banks & Richard Blundell & James P. Smith, 2003. "Understanding Differences in Household Financial Wealth between the United States and Great Britain," Journal of Human Resources, University of Wisconsin Press, vol. 38(2).
    31. Foster, James E & Shorrocks, Anthony F, 1991. "Subgroup Consistent Poverty Indices," Econometrica, Econometric Society, vol. 59(3), pages 687-709, May.
    32. Paglin, Morton, 1979. "The Measurement of Inequality: Reply," American Economic Review, American Economic Association, vol. 69(4), pages 673-677, September.
    33. Danziger, Sheldon & Haveman, Robert H & Smolensky, Eugene, 1977. "The Measurement and Trend of Inequality: Comment," American Economic Review, American Economic Association, vol. 67(3), pages 505-512, June.
    34. repec:bla:revinw:v:48:y:2002:i:4:p:443-69 is not listed on IDEAS
    35. Richard V. Burkhauser & Joachim R. Frick & Johannes Schwarze, 1997. "A Comparison Of Alternative Measures Of Economic Well‐Being For Germany And The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 153-171, June.
    36. Tullio Jappelli, 1999. "The Age‐Wealth Profile And The Life‐Cycle Hypothesis: A Cohort Analysis With A Time Series Of Cross‐Sections Of Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 57-75, March.
    37. Konow, James, 1996. "A positive theory of economic fairness," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 13-35, October.
    38. Anthony Shorrocks & Guanghua Wan, 2005. "Spatial decomposition of inequality," Journal of Economic Geography, Oxford University Press, vol. 5(1), pages 59-81, January.
    39. Torfinn Harding & Haakon O. Aa. Solheim & Andreas Benedictow, 2004. "House ownership and taxes," Discussion Papers 395, Statistics Norway, Research Department.
    40. Davies, James B. & Shorrocks, Anthony F., 2000. "The distribution of wealth," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 11, pages 605-675, Elsevier.
    41. Formby, John P & Seaks, Terry G & Smith, W James, 1989. "On the Measurement and Trend of Inequality: A Reconsideration," American Economic Review, American Economic Association, vol. 79(1), pages 256-264, March.
    42. Wertz, Kenneth L, 1979. "The Measurement of Inequality: Comment," American Economic Review, American Economic Association, vol. 69(4), pages 670-672, September.
    43. Eva Sierminska & Andrea Brandolini & Timothy Smeeding, 2006. "The Luxembourg Wealth Study – A cross-country comparable database for household wealth research," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 4(3), pages 375-383, December.
    44. Atkinson, A B, 1971. "The Distribution of Wealth and the Individual Life-cycle," Oxford Economic Papers, Oxford University Press, vol. 23(2), pages 239-254, July.
    45. Mirer, Thad W, 1979. "The Wealth-Age Relation among the Aged," American Economic Review, American Economic Association, vol. 69(3), pages 435-443, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Almås, Ingvild & Havnes, Tarjei & Mogstad, Magne, 2011. "Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967{2004," Discussion Paper Series in Economics 6/2010, Norwegian School of Economics, Department of Economics.
    2. Ingvild Almås & Tarjei Havnes & Magne Mogstad, 2011. "Baby booming inequality? Demographic change and earnings inequality in Norway, 1967–2000," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 629-650, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ingvild Almås & Magne Mogstad, 2009. "Older or Wealthier? The Impact of Age Adjustments on the Wealth Inequality Ranking of Countries," Discussion Papers 583, Statistics Norway, Research Department.
    2. Ingvild Almås & Tarjei Havnes & Magne Mogstad, 2011. "Baby booming inequality? Demographic change and earnings inequality in Norway, 1967–2000," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 629-650, December.
    3. Frank A. Cowell & Philippe Kerm, 2015. "Wealth Inequality: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 671-710, September.
    4. Ingvild Almas & Tarjei Havnes & Magne Mogstad, 2012. "Adjusting for age effects in cross-sectional distributions," Stata Journal, StataCorp LP, vol. 12(3), pages 393-405, September.
    5. John Creedy, 1991. "Lifetime Earnings and Inequality," The Economic Record, The Economic Society of Australia, vol. 67(1), pages 46-58, March.
    6. Fachinger, Uwe, 2002. "Sparfähigkeit und Vorsorge gegenüber sozialen Risiken bei Selbständigen: Einige Informationen auf der Basis der Einkommens- und Verbrauchsstichprobe 1998," MPRA Paper 1126, University Library of Munich, Germany.
    7. François Bourguignon & Christian Morrisson, 1984. "La mobilité des salaires sur le cycle de vie : un échantillon de cadres français sur trente ans," Revue Économique, Programme National Persée, vol. 35(5), pages 929-970.
    8. Ihle, Dorothee & Siebert-Meyerhoff, Andrea, 2017. "The older, the richer? A decomposition of wealth inequality by age subgroups," CAWM Discussion Papers 97, University of Münster, Münster Center for Economic Policy (MEP).
    9. John Fitzgerald & Tim Maloney, 1990. "The Impact of Federal Income Taxes and Cash Transfers On the Distribution of Lifetime Household Income, 1969-1981," Public Finance Review, , vol. 18(2), pages 182-197, April.
    10. Francisco Azpitarte, 2008. "The Household Wealth Distribution in Spain: The Role of Housing and Financial Wealth," Working Papers 83, ECINEQ, Society for the Study of Economic Inequality.
    11. Cagetti, Marco & De Nardi, Mariacristina, 2008. "Wealth Inequality: Data And Models," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 285-313, September.
    12. Erik Figueiredo & José Silva Netto Junior, 2014. "More equal but not so fair: an analysis of Brazilian income distribution from 1995 to 2009," Empirical Economics, Springer, vol. 46(4), pages 1325-1337, June.
    13. Jurgen Faik & Uwe Fachinger, 2013. "The decomposition of well-being categories: An application to Germany," Working Papers 307, ECINEQ, Society for the Study of Economic Inequality.
    14. Francisco Azpitarte, 2010. "The household wealth distribution in Spain: The role of housing and financial wealth," Hacienda Pública Española / Review of Public Economics, IEF, vol. 194(3), pages 65-90, October.
    15. Elinder, Mikael & Erixson, Oscar & Waldenström, Daniel, 2018. "Inheritance and wealth inequality: Evidence from population registers," Journal of Public Economics, Elsevier, vol. 165(C), pages 17-30.
    16. Jiandong Chen & Dai Dai & Ming Pu & Wenxuan Hou & Qiaobin Feng, 2010. "The trend of the Gini coefficient of China," Global Development Institute Working Paper Series 10910, GDI, The University of Manchester.
    17. Mauro Baranzini, 2005. "Modigliani's life-cycle theory of savings fifty years later," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(233-234), pages 109-172.
    18. John A. Bishop & John P. Formby & W. James Smith, 1997. "Demographic Change and Income Inequality in the United States, 1976‐1989," Southern Economic Journal, John Wiley & Sons, vol. 64(1), pages 34-44, July.
    19. Laura A. Harvey & Jochen O. Mierau & James Rockey, 2024. "Inequality in an Equal Society," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 86(4), pages 871-904, August.
    20. Jochen O. Mierau & James Rockey, 2015. "Inequality in an Equal Society: Theory and Evidence," Discussion Papers in Economics 15/23, Division of Economics, School of Business, University of Leicester.

    More about this item

    Keywords

    Wealth inequality; Life cycle; Age adjustments; Gini coefficient.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    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:hhs:nhheco:2010_009. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Karen Reed-Larsen (email available below). General contact details of provider: https://edirc.repec.org/data/sonhhno.html .

    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.