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Left and Right: A Tale of Two Tails of the Wealth Distribution

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Abstract

We study a model of wealth accumulation in altruistic lineages, in which households face uninsurable risk, investment indivisibilities and credit market imperfections. A thick upper tail of the stationary distribution of wealth is shown to emerge as a robust prediction, irrespective of (i) the presence of multidimensional (wealth and ability) heterogeneity and non-convexities in human capital formation, and (ii) the nature of parental bequest motives (joy-of-giving vs. paternalism). Additionally, (iii) we identify conditions under which the unique, ergodic wealth distribution exhibits a mass point at the bottom of its support, where bequest incentives are inactive and social mobility can only occur via occupational upgrading within lineages. Our interest in the features of the left tail motivates the exploration of the effects of various frictions and fiscal measures on intergenerational wealth transmission and the persistence of inequality. We show that tax policies (e.g. capital income taxation) targeting top wealth inequality can dilate expected residence time of lineages in the lower states of the wealth space, providing a strong case for redistributive policies that favour access to education for the less wealthy.

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  • Marcello D'Amato & Christian Di Pietro & Marco M. Sorge, 2023. "Left and Right: A Tale of Two Tails of the Wealth Distribution," CSEF Working Papers 691, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:691
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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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