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

24 January 2019
Versione stampabile

Venue: Seminar Room, Economics Building, via Inama 5 (Trento)
Time: 2 pm



One of the main empirical features of wealth inequality over the last century has been the emergence of right-skewed distributions with relatively large and slowly declining top shares. While mostly focusing on the upper tail of the wealth distribution, the existing literature has paid far less attention to the relationship between top wealth concentration and the structural properties at the bottom of the distribution, which may be characterized by distinct mobility patterns. We develop a simple framework of intergenerational transmission of human capital and bequests where credit market imperfections, indivisibilities in educational investment and the ensuing occupational choices interact in shaping the stationary (full) distribution of wealth. Our model is flexible enough to produce both ergodicity and non-ergodicity (history dependence) in the process of wealth accumulation, and delivers three main predictions: 1) When ergodicity is supported at equilibrium, the limit distribution of wealth features a thick right tail, while the interplay between credit market imperfections and bequest motives enforce a mass point (almost zero-wealth households) in the left tail; 2) Taxing capital income reduces wealth concentration at the top, yet it adversely affects the left tail of the wealth distribution, by encouraging downward mobility of almost-zero wealth households; somewhat surprisingly, redistribution of tax revenues - via e.g. education subsidization - may well fail to induce upward mobility at the bottom, while also supporting a more unequal distribution of wealth in the right tail; 3) A simple wealth tax scheme can be designed, under which both top wealth inequality and the measure of almost zero-wealth households prove reduced.