Gaillard, Alexandre, Hellwig, Christian, Wangner, Philipp and Werquin, Nicolas (2023) Consumption, Wealth, and Income Inequality: A Tale of Tails. TSE Working Paper, n. 23-1493, Toulouse

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We provide evidence that the distributions of consumption, labor income, wealth, and capital income exhibit asymptotic power-law behavior with a strict ranking of upper tail inequality, in that order, from the least to the most unequal. We show analytically and quantitatively that the canonical heterogeneous-agent model cannot replicate the proper ranking and mag-nitudes of these four tails simultaneously. Mechanisms addressing the wealth concentration puzzle in these models through return heterogeneity lead to a mirror consumption concen-tration puzzle. We match the cross-sectional data on these four Pareto tails by positing a combination of non-homothetic, wealth-dependent preferences and scale-dependent returns to capital. We underscore the importance of these results by showing that all four dimensions of top inequality jointly determine the long-run elasticity that governs the revenue-maximizing capital tax rate.

Item Type: Monograph (Working Paper)
Language: English
Date: December 2023
Place of Publication: Toulouse
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 08 Dec 2023 09:31
Last Modified: 08 Dec 2023 09:31
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