IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/28468.html
   My bibliography  Save this paper

Reparations and Persistent Racial Wealth Gaps

Author

Listed:
  • Job Boerma
  • Loukas Karabarbounis

Abstract

We analyze the magnitude and persistence of the racial wealth gap using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous beliefs about risky returns, reflecting differences in dynasties' investment experiences over time. Feeding the exclusion of Black dynasties from labor and capital markets into the model as the only driving force, we find that the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We explore how the future trajectory of the racial wealth gap might change in response to various policies. Wealth transfers to all Black dynasties that eliminate the average wealth gap today do not lead to long-run wealth convergence. The logic is that centuries-long exclusions lead Black dynasties to hold pessimistic beliefs about risky returns and to forgo investment opportunities after the wealth transfer. Investment subsidies toward Black entrepreneurs are more effective than wealth transfers in permanently eliminating the racial wealth gap.

Suggested Citation

  • Job Boerma & Loukas Karabarbounis, 2021. "Reparations and Persistent Racial Wealth Gaps," NBER Working Papers 28468, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28468
    Note: EFG LS PE POL PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w28468.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    2. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    3. Higgs, Robert, 1982. "Accumulation of Property by Southern Blacks before World War I," American Economic Review, American Economic Association, vol. 72(4), pages 725-737, September.
    4. Francine D. Blau & John W. Graham, 1990. "Black-White Differences in Wealth and Asset Composition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 321-339.
    5. Patrick Bayer & Kerwin Kofi Charles, 2018. "Divergent Paths: A New Perspective on Earnings Differences Between Black and White Men Since 1940," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1459-1501.
    6. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    7. Dionissi Aliprantis & Daniel R. Carroll & Eric Young, 2019. "The Dynamics of the Racial Wealth Gap," Working Papers 19-18R, Federal Reserve Bank of Cleveland, revised 29 Nov 2022.
    8. Thomas Piketty, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 551-584.
    9. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    10. Alessandra Fogli & Laura Veldkamp, 2011. "Nature or Nurture? Learning and the Geography of Female Labor Force Participation," Econometrica, Econometric Society, vol. 79(4), pages 1103-1138, July.
    11. Jess Benhabib & Alberto Bisin & Mi Luo, 2019. "Wealth Distribution and Social Mobility in the US: A Quantitative Approach," American Economic Review, American Economic Association, vol. 109(5), pages 1623-1647, May.
    12. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    13. Robert Fairlie & Alicia Robb & David T. Robinson, 2022. "Black and White: Access to Capital Among Minority-Owned Start-ups," Management Science, INFORMS, vol. 68(4), pages 2377-2400, April.
    14. Schmelzing, Paul, 2020. "Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018," Bank of England working papers 845, Bank of England.
    15. Hoyt Bleakley & Joseph Ferrie, 2016. "Shocking Behavior: Random Wealth in Antebellum Georgia and Human Capital Across Generations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1455-1495.
    16. Francisco J. Buera & Alexander Monge‐Naranjo & Giorgio E. Primiceri, 2011. "Learning the Wealth of Nations," Econometrica, Econometric Society, vol. 79(1), pages 1-45, January.
    17. Andreas Fagereng & Martin Blomhoff Holm & Benjamin Moll & Gisle Natvik, 2019. "Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains," NBER Working Papers 26588, National Bureau of Economic Research, Inc.
    18. Bisin, Alberto & Verdier, Thierry, 2001. "The Economics of Cultural Transmission and the Dynamics of Preferences," Journal of Economic Theory, Elsevier, vol. 97(2), pages 298-319, April.
    19. Margo, Robert A, 1984. "Accumulation of Property by Southern Blacks before World War I: Comment and Further Evidence," American Economic Review, American Economic Association, vol. 74(4), pages 768-776, September.
    20. Laurent Bach & Laurent E. Calvet & Paolo Sodini, 2020. "Rich Pickings? Risk, Return, and Skill in Household Wealth," American Economic Review, American Economic Association, vol. 110(9), pages 2703-2747, September.
    21. Ulrike Malmendier & Stefan Nagel, 2016. "Learning from Inflation Experiences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(1), pages 53-87.
    22. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(3), pages 743-768.
    23. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    24. Lisa Cook, 2014. "Violence and economic activity: evidence from African American patents, 1870–1940," Journal of Economic Growth, Springer, vol. 19(2), pages 221-257, June.
    25. Frank P. Stafford & Ngina S. Chiteji, 1999. "Portfolio Choices of Parents and Their Children as Young Adults: Asset Accumulation by African-American Families," American Economic Review, American Economic Association, vol. 89(2), pages 377-380, May.
    26. Bogan, Vicki & Darity Jr., William, 2008. "Culture and entrepreneurship? African American and immigrant self-employment in the United States," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1999-2019, October.
    27. Matthew Smith & Owen Zidar & Eric Zwick, 2020. "Top Wealth in America: New Estimates and Implications for Taxing the Rich," Working Papers 264, Princeton University, Department of Economics, Center for Economic Policy Studies..
    28. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2007. "Social Capital as Good Culture," Economics Working Papers ECO2007/57, European University Institute.
    29. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
    30. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, vol. 79(1), pages 123-157, January.
    31. Alberto Alesina & Stefanie Stantcheva & Edoardo Teso, 2018. "Intergenerational Mobility and Preferences for Redistribution," American Economic Review, American Economic Association, vol. 108(2), pages 521-554, February.
    32. Amir Kermani & Francis Wong, 2021. "Racial Disparities in Housing Returns," NBER Working Papers 29306, National Bureau of Economic Research, Inc.
    33. William J. Collins & Marianne H. Wanamaker, 2017. "African American Intergenerational Economic Mobility Since 1880," NBER Working Papers 23395, National Bureau of Economic Research, Inc.
    34. Jean-Felix Brouillette & Charles I. Jones & Peter J. Klenow, 2021. "Race and Economic Well-Being in the United States," NBER Working Papers 29539, National Bureau of Economic Research, Inc.
    35. Paola Giuliano & Antonio Spilimbergo, 2014. "Growing up in a Recession," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 787-817.
    36. Ellora Derenoncourt & Claire Montialoux, 2021. "Minimum Wages and Racial Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 169-228.
    37. Anna Aizer & Ryan Boone & Adriana Lleras-Muney & Jonathan Vogel, 2020. "Discrimination and Racial Disparities in Labor Market Outcomes: Evidence from WWII," NBER Working Papers 27689, National Bureau of Economic Research, Inc.
    38. Daniel Aaronson & Bhashkar Mazumder, 2008. "Intergenerational Economic Mobility in the United States, 1940 to 2000," Journal of Human Resources, University of Wisconsin Press, vol. 43(1).
    39. Robert W. Fairlie & Bruce D. Meyer, 2000. "Trends in Self-Employment among White and Black Men during the Twentieth Century," Journal of Human Resources, University of Wisconsin Press, vol. 35(4), pages 643-669.
    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. Tan, Eugene & Zeida, Teegawende H., 2024. "Consumer demand and credit supply as barriers to growth for Black-owned startups," Journal of Monetary Economics, Elsevier, vol. 143(C).
    2. Ellora Derenoncourt & Chi Hyun Kim & Moritz Kuhn & Moritz Schularick, 2024. "Unemployment risk, portfolio choice, and the racial wealth gap," CRC TR 224 Discussion Paper Series crctr224_2024_508, University of Bonn and University of Mannheim, Germany.
    3. Kuhn, Moritz & Bartscher, Alina & Schularick, Moritz & Wachtel, Paul, 2021. "Monetary policy and racial inequality," CEPR Discussion Papers 15734, C.E.P.R. Discussion Papers.
    4. Ellora Derenoncourt & Chi Hyun Kim & Moritz Kuhn & Moritz Schularick, 2024. "Unemployment Risk, Portfolio Choice, and the Racial Wealth Gap," Opportunity and Inclusive Growth Institute Working Papers 086, Federal Reserve Bank of Minneapolis.
    5. Ellora Derenoncourt & Chi Hyun Kim & Moritz Kuhn & Moritz Schularick, 2023. "Unemployment Risk, Portfolio Choice, and the Racial Wealth Gap," ECONtribute Discussion Papers Series 265, University of Bonn and University of Cologne, Germany.
    6. Ellora Derenoncourt & Chi Hyun Kim & Moritz Kuhn & Moritz Schularick, 2023. "Unemployment Risk, Portfolio Choice, and the Racial Wealth Gap," Working Papers 332, Princeton University, Department of Economics, Center for Economic Policy Studies..
    7. Katya Kartashova & Xiaoqing Zhou, 2021. "Wealth Inequality and Return Heterogeneity During the COVID-19 Pandemic," Working Papers 2114, Federal Reserve Bank of Dallas.
    8. Jean-Felix Brouillette & Charles I. Jones & Peter J. Klenow, 2021. "Race and Economic Well-Being in the United States," NBER Working Papers 29539, National Bureau of Economic Research, Inc.
    9. Victoria Gregory & Julian Kozlowski & Hannah Rubinton, 2022. "The Impact of Racial Segregation on College Attainment in Spatial Equilibrium," Working Papers 2022-036, Federal Reserve Bank of St. Louis, revised 27 Nov 2024.
    10. Eden, Maya, 2023. "Quantifying racial discrimination in the 1944 G.I. bill," Explorations in Economic History, Elsevier, vol. 90(C).
    11. Ewens, Michael, 2022. "Race and Gender in Entrepreneurial Finance," SocArXiv djf8z, Center for Open Science.
    12. Arlen Guarin & Juliana Londoño-Vélez & Christian Posso, 2023. "Reparations as Development? Evidence from Victims of the Colombian Armed Conflict," Borradores de Economia 1236, Banco de la Republica de Colombia.
    13. Dossche, Maarten & Kolndrekaj, Aleksandra & Propst, Maximilian & Ramos Perez, Javier & Slacalek, Jiri, 2022. "Immigrants and the distribution of income and wealth in the euro area: first facts and implications for monetary policy," Working Paper Series 2719, European Central Bank.

    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. Thomas Blanchet, 2022. "Uncovering the Dynamics of the Wealth Distribution," Working Papers hal-03865295, HAL.
    2. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    3. Gaillard, Alexandre & Hellwig, Christian & Wangner, Philipp & Werquin, Nicolas, 2023. "Consumption, Wealth, and Income Inequality: A Tale of Tails," CEPR Discussion Papers 18666, C.E.P.R. Discussion Papers.
    4. İmrohoroğlu, Ayşe & Zhao, Kai, 2022. "Rising wealth inequality: Intergenerational links, entrepreneurship, and the decline in interest rate," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 86-104.
    5. Kaymak, Barıș & Leung, David & Poschke, Markus, 2020. "Accounting for Wealth Concentration in the US," IZA Discussion Papers 13082, Institute of Labor Economics (IZA).
    6. Aditya Aladangady & Etienne Gagnon & Benjamin K. Johannsen & William B. Peterman, 2021. "Macroeconomic Implications of Inequality and Income Risk," Finance and Economics Discussion Series 2021-073, Board of Governors of the Federal Reserve System (U.S.).
    7. Hero Ashman & Seth Neumuller, 2020. "Can Income Differences Explain the Racial Wealth Gap: A Quantitative Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 35, pages 220-239, January.
    8. Joachim Hubmer & Per Krusell & Anthony A. Smith Jr., 2020. "Sources of US Wealth Inequality: Past, Present, and Future," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, pages 391-455, National Bureau of Economic Research, Inc.
    9. Dan Cao & Wenlan Luo, 2017. "Persistent Heterogeneous Returns and Top End Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 301-326, October.
    10. Arun Advani & George Bangham & Jack Leslie, 2021. "The UK's wealth distribution and characteristics of high‐wealth households," Fiscal Studies, John Wiley & Sons, vol. 42(3-4), pages 397-430, September.
    11. Andersen, Torben M. & Bhattacharya, Joydeep & Grodecka-Messi, Anna & Mann, Katja, 2024. "Pension reform and wealth inequality: Theory and evidence," European Economic Review, Elsevier, vol. 165(C).
    12. Pavel Brendler & Moritz Kuhn & Ulrike I. Steins, 2024. "To Have or Not to Have: Understanding Wealth Inequality," Opportunity and Inclusive Growth Institute Working Papers 098, Federal Reserve Bank of Minneapolis.
    13. Per Krusell & Anthony Smith & Joachim Hubmer, 2015. "The historical evolution of the wealth distribution: A quantitative-theoretic investigation," 2015 Meeting Papers 1406, Society for Economic Dynamics.
    14. Matthias Krapf, 2023. "Does Income Risk Affect the Wealth Distribution?," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 49(4), pages 475-515, October.
    15. Davies, James B. & Lluberas, Rodrigo & Waldenström, Daniel, 2024. "Long-Term Trends in the Distribution of Wealth and Inheritance," Working Paper Series 1502, Research Institute of Industrial Economics.
    16. 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.
    17. Hoang Khieu, 2024. "On the distribution of lifetime wealth accumulation," Journal of Economics, Springer, vol. 143(1), pages 87-100, September.
    18. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2016. "Accounting for Wealth Inequality Dynamics: Methods, Estimates and Simulations for France (1800-2014)," World Inequality Lab Working Papers halshs-02794339, HAL.
    19. Thilo N H Albers & Charlotte Bartels & Moritz Schularick, 2022. "Wealth and its Distribution in Germany, 1895-2018," Working Papers halshs-03828863, HAL.
    20. Macnamara, Patrick & Pidkuyko, Myroslav & Rossi, Raffaele, 2024. "Marginal tax rates and income in the long run: Evidence from a structural estimation," Journal of Monetary Economics, Elsevier, vol. 142(C).

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:28468. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.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.