Abstract
We estimate the parameters of a macroeconomic model of the dynamics of the distribution of wealth - as driven by stochastic earnings, differential savings, and capital income risk. We do not impose any assumption on the stationarity of the process, centering in fact on the transitional dynamics of the wealth distribution in the U.S. in the period we have SCF data for - from 1962- 63 to 2019. We show that the model, at the estimated parameter values, accurately produces the dramatic increase in inequality observed in this period (the focus of most policy debates, e.g., about wealth taxation). We show how tax reforms - and how agents anticipate them - affect wealth accumulation; and we identify (conditions on) taxation processes which induce the dynamics to be stationary; that is, leading wealth inequality to settle. Furthermore, we study the dynamics of the racial gap in wealth and the relative role of stochastic earnings, differential savings, and capital income risk in driving it.
Local Organizer: Nicola Mastrorocco