The U.S. wealth distribution has three prominent features: a fat tail, skewness to the right, and a high Gini coefficient. Among these three features the fat tail is the most challenging task for macroeconomists. In this dissertation we show that investment luck could produce the fat tail of wealth distribution.
In Chapter 1, we set up an OLG model in which the agents suffer from investment risk and a constant rate of death. The agent has a “joy-of-giving” bequest motive. Government subsidizes the newborns whose inheritance is lower than a threshold level, such that the starting wealth level of those agents is the threshold level. We analytically solve the stationary wealth distribution of this economy which turns out to be a “double Pareto” distribution. The wealth distribution of the model economy replicates that of U.S. economy. We disentangle the contribution of age, investment luck, and inheritance to the Gini coefficient of wealth distribution.
In Chapter 2, we set up an OLG model in which the agents have finite life-time and the investment luck across generations is correlated. We analytically show that the upper tail of stationary wealth distribution asymptotically follows a Pareto distribution. We show how the bequest motive intensity and the correlation of investment luck across generations influence the fatness of the tail of wealth distribution. We also show how the capital income tax and estate tax influence the fatness of the tail of wealth distribution.
In Chapter 3, I set up an OLG model in which the agents suffer from within-life investment risk and have finite lifetime. The agent has a “joy-of-giving” bequest motive. I analytically show that the upper tail of stationary wealth distribution asymptotically follows a Pareto distribution. The calibrated economy matches the Lorenz curve of wealth distribution in U.S. economy. I also investigate how the capital income taxes and estate tax influence the fatness of the tail of wealth distribution and social welfare.
|Commitee:||Bisin, Alberto, Sargent, Thomas|
|School:||New York University|
|School Location:||United States -- New York|
|Source:||DAI-A 71/07, Dissertation Abstracts International|
|Keywords:||Fat tail, Pareto distribution, Wealth distribution|
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