Heterogeneity and Persistence in Returns to Wealth

By A. Fagereng, Luigi Guiso, Davide Malacrinò, Luigi Pistaferri. Econometrica, 2018

330 citations recorded by the source corpus.

We provide a systematic analysis of the properties of individual returns to wealth using 12 years of population data from Norway's administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net‐of‐tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e86b8742e15bbd660ce443ef5a7f03a8632f883b

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Citations in the corpus

Wealth Distribution and Social Mobility in the US: A Quantitative Approach (2015, neutral): “However, such discount factors are nonmeasurable, while microdata allowing estimates of capital income risk are instead rapidly becoming more available; see, e.g., the tax records for Norway studied by Fagereng et al. (2016, 2017) and the Swedish data studied by Bach, Calvet, and Sodini (2017).”
Income and Wealth Inequality in America, 1949–2016 (2018, positive): “With regard to heterogeneity in returns along the wealth distribution, Fagereng et al. (2016) use administrativeNorwegian tax data and document substantial heterogeneity in wealth returns and intergenerational persistence.”
Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains (2019, neutral): “(11)Fagereng et al. (2016a,b) and Bach, Calvet and Sodini (2016) document that wealthier households obtain higher returns to their wealth whereas we document that they have higher saving rates out of income.”
How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area (2018, background): “…technological progress (Katz and Murphy, 1992; Acemoglu, 2002; Autor, 2014), the deepening of globalization (Katz and Autor, 1999), the tendency toward the reduction in the progressivity of tax systems (Alvaredo et al., 2013) and portfolio heterogeneity (Fagereng et al., 2020; Hubmer et al., 2020).”
Wealth Taxation and Wealth Accumulation: Theory and Evidence From Denmark* (2018, neutral): “This falls within the range of existing estimates of wealth returns at the top of the distribution (see, e.g., Fagereng et al. 2016) and it corresponds to what we assume in the calibration exercise presented later.”
Household Portfolio Underdiversification and Probability Weighting: Evidence from the Field (2018, unknown): “This will lead to increased heterogeneity in realized investment returns, which potentially exacerbates wealth inequality (e.g., Bach, Calvet, and Sodini, 2017; Lusardi, Michaud, and Mitchell, 2017; Fagereng et al. 2018).”