We study the lifecycle dynamics of wealth inequality using 1993-2019 Norwegian administrative panel data on wealth and income. Employing a novel budget-constraint approach, we decompose the excess wealth of the top 0.1% households relative to the median between ages 45 and 64 into higher saving rates (36%), inheritances (31%), returns (28%), and labor income (5%). One-quarter of the wealthiest—the “New Money”—start with negative wealth on average but accumulate rapidly through high labor income and exceptionally high saving rates and returns. The “Old Money” inherit substantial wealth and grow it through above-average though more modest saving and returns. We use these dynamic facts to evaluate five standard wealth inequality models. Although these models match cross-sectional wealth concentration, they fail to reproduce the distinct dynamics of New and Old Money. A heterogeneous entrepreneurship model with decreasing returns to scale technology and nonhomothetic preferences is consistent with the observed dynamics .
Why Are the Wealthiest So Wealthy? New Longitudinal Empirical Evidence and Implications for Theories of Wealth Inequality with Joachim Hubmer, Serdar Ozkan, and Sergio Salgado, forthcoming in Econometrica
Annual wealth tax is back on the policy agenda, but discussion of its effect is not well informed. When standard methodology is used and wealth‐tax burdens are measured against annual individual income, it is found that a large share of the tax burden falls on people with low incomes. In this study, we use rich Norwegian administrative data to discuss the distributional effects of wealth tax under several different income concepts, ultimately measuring income over the lifetime of family dynasties. When measured against lifetime income and lifetime income in dynasties, wealth tax is mostly borne by high‐income taxpayers and is seen as clearly redistributive.
Distributional Effects of a Wealth Tax under Lifetime-Dynastic Income Concepts, with Thor O. Thoresen, Scandinavian Journal of Economics 123(1), 184-215, 2021.
Industrialist Andrew Carnegie claimed that parents who bequeath vast fortunes to their children deaden the “talents and energies” of their offspring. But do inheritances really have such effects, and can those effects be quantified?
Carnegie effect estimates are few, reflecting that such effects are hard to trace. Most previous studies rely on data from limited-size surveys. We use information from administrative data covering the entire Norwegian population, enabling an examination of the heterogeneity of the Carnegie effect. Estimation results show significant reductions in labor supply for recipients of large inheritances. We find that Carnegie effects differ according to transfer size, the recipient’s age and eligibility for other transfer programs, and the existence of new heirs in the family chain.
Heterogeneity of the Carnegie Effect, with Erlend E. Bø and Thor O. Thoresen, Journal of Human Resources, 54(3), 726-759, 2019.
Non-technical summary: Investigating the ‘Carnegie effect', Significance, June/2020
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This study argues that parents have a desire for dividing equally between their children, and that this motive applies to transfers of gifts inter vivos. We suggest that the equal division motive competes with traditional altruism: support to the child or the children with greatest needs. When parents are drawn between these two ambitions, the degree of income compensation should be stronger in one-child families and we expect the altruism motive to dominate the equal division desire at low levels of recipients' income. We find support for both these hypotheses, when analyzing Norwegian data for inter vivos transfers behavior. The data include information about stated attitudes toward transfers among the parents, which also support the equal division motive.
Parents' Desire to Make Equal Inter Vivos Transfers, with Thor O. Thoresen, CESifo Economic Studies, 57, 121-155, 2011.
Getting a foot on the housing ladder: The role of parents in giving a leg-up with Kjersti-Gro Lindquist, Working Paper 19/2017, Norges Bank