CMStatistics 2018: Start Registration
View Submission - CFE
Title: Left and right: A tale of two tails of the wealth distribution Authors:  Marco Maria Sorge - University of Salerno (Italy) [presenting]
Christian Di Pietro - University of Salerno and CELPE (Italy)
Marcello DAmato - University of Salerno CSEF and CELPE (Italy)
Abstract: The aim is to develop a simple framework of wealth transmission where credit market imperfections, indivisibilities in investment in education and the ensuing occupational mobility patterns all shape the stationary (full) distribution of wealth. We investigate the properties of the limit distribution of wealth in a simple OLG model with a bequest motive and occupational choice via educational investment. In equilibrium, wealth dynamics are described by a Kesten process, which, under mild conditions, induces a power-tailed time invariant distribution. Upward wealth mobility only occurs in the form of human capital accumulation and occupational upgrading, while for higher levels the wealth mobility is driven by the accumulation of financial wealth at the lineage level. A heavy right tail of the limit distribution emerges, even in the presence of credit market imperfections, whereas at the bottom of the support the credit constraint induces existence of a mass point (under particular circumstances, a poverty trap. Implications of multidimensional (wealth and ability) heterogeneity for policy design are also studied, with a focus on the scope for temporary (one shot) large scale interventions, as typically advocated in the presence of poverty traps, vis-\'a-vis persistent redistributive policies.