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Stefan Ederer, Maximilian Mayerhofer, Miriam Rehm
Rich and ever richer: Differential returns across socio-economic groups
PKES Working Papers, 2019, (1914),
This paper estimates rates of return across the gross wealth distribution in eight European countries. Like differential saving rates, differential rates of return matter for Post Keynesian theory, because they impact the income and wealth distribution and add an explosive element to growth models. We show that differential rates of return matter empirically by merging data on household balance sheets with long-run returns for individual asset categories. We find that (1) the composition of wealth differentiates between three socioeconomic groups: 30 percent are asset-poor, 65 percent are middle-class home owners, and the top 5 percent are business-owning capitalists; (2) rates of return rise across all groups; and (3) rates of return broadly follow a log-shaped function across the distribution, where inequality in the lower half of the distribution is higher than in the upper half. If socioeconomic groups are collapsed into the bottom 95 percent workers and top 5 percent capitalists, then rates of return are 5.6 percent for the former and 7.2 percent for the latter.
JEL-Codes:D31 D33 E12 E21 E43
Research group:Macroeconomics and European Economic Policy