DP11047 Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality

Author(s): Andreas Fagereng, Luigi Guiso, Davide Malacrino, Luigi Pistaferri
Publication Date: January 2016
Keyword(s): Heterogeneity, Returns to Wealth, Wealth Inequality
JEL(s): E13, E21, E24
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11047

Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth.