Rising wealth inequality: Intergenerational links, entrepreneurship, and the decline in interest rate.

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Authors: Ayse Imrohoroglu and Kai Zhao
Date: Apr. 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 231 words

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Abstract :

Keywords Wealth inequality; Intergenerational links; Saving; Entrepreneurship; Lifecycle models Highlights * The decline in the world interest rate plays a role in the increase in wealth inequality in the U.S. This channel is different from the implications in the literature where it is the higher interest rates that increase wealth inequality. Abstract The share of wealth held by the top one percent of Americans has increased from about 24% in 1980 to 40% in 2010. This paper examines the role played by the decline in the world interest rates in accounting for this observation. Our model consists of households who either run a business or work for others. In this environment, the decline in the interest rate increases wealth inequality since entrepreneurs benefit from lower financing costs while workers face lower returns. This channel can account for over 60 percent of the increase in the top wealth shares in the data. Author Affiliation: (a) Department of Finance and Business Economics, Marshall School of Business, University of Southern California, Los Angeles CA 90089-0808, USA (b) Department of Economics, The University of Connecticut, Storrs CT 06269-1063, USA * Corresponding author. Article History: Received 19 August 2020; Revised 11 February 2022; Accepted 15 February 2022 (footnote)[white star] We thank seminar participants at USC Marshall, SISU, University of Houston, and an anonymous referee for their comments. Byline: Ayse Imrohoroglu [ayse@marshall.usc.edu] (*,a), Kai Zhao [kai.zhao@uconn.edu] (b)

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Gale Document Number: GALE|A700885618