Research
Research
A Scrooge McDuck Theory of Wealth Dynamics - Draft
Peter Sinclair Prize (Joint 1st Place) – MMF PhD Conference 2025
Can the rise in the wealth-to-output ratio observed in advanced economies over recent decades be explained by an increase in top income inequality? Recent contributions that advance this interpretation struggle to account for the fact that the increase in wealth was driven by asset prices, rather than capital accumulation. This paper shows that these stylized facts can be reconciled in the presence of insatiable preference for wealth. Such preferences induce a cap on optimal consumption—which is more likely to become binding when income inequality is large. When it does, top-income agents accumulate diverging wealth over time while keeping their consumption bounded. This consumption-saving behavior then supports the existence of a uniquely determined rational bubble, which grows at a rate that exceeds that of the economy. The bubble crowds out investment, while its diverging price sustains a permanent rise in wealth inequality. In this environment, wealth and capital income taxes are not equivalent, but both can shift the equilibrium from bubbly to non-bubbly—thus being potentially redistributive and growth-enhancing. A quantitative exercise suggests that a 1.5 percent wealth tax in the U.S. would raise capital by 4.5 percent over 30 years.
Public Debt in Times of Rising Wealth-to-Output Ratios
Rational Bubbles in the Ecological Transition
This paper studies how an ecological transition, modelled as a permanent decline in TFP growth, affects the pricing of unproductive rational bubbles in an overlapping-generations economy. It identifies two channels: an ambiguous long-run effect, more likely to be negative when the intertemporal elasticity of substitution is high, and a negative transition effect. When the overall effect is negative, a trade-off emerges between the speed of the ecological transition and the size of bubble losses. A new numerical method for solving transition paths with deterministic rational bubbles is developed.