Wealth distribution in life-cycle economies

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Abstract

This paper compares the age-wealth distribution produced in life-cycle economies to the corresponding distribution in the US economy. The idea is to calibrate the model economies to match features of the US earnings distribution and then examine the wealth distribution implications of the model economies. The findings are that the calibrated model economies with earnings and lifetime uncertainty can replicate measures of both aggregate wealth and transfer wealth in the US. Furthermore, the model economies produce the US wealth Gini and a significant fraction of the wealth inequality within age groups. However, the model economies produce less than half the fraction of wealth held by the top 1 percent of US households.

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    I thank the University of Illinois Campus Research Board and the National Centre for Supercomputing Applications for funding and Eleftherios Zacharias for research assistance. I thank participants of the 1994 SEDC meetings and seminar participants at Carnegie Mellon, FEDESAR-ROLLO, Illinois, Los Andes, Michigan State, Pennsylvania, and Rochester for a tremendous number of helpful comments. I would also like to give special thanks to Gerhard Glomm, Per Krusell, and Jose-Victor Rios-Rull.

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