Permanent-Income Inequality

We estimate the extent of Permanent-Income inequality and concentration using microdata for 1989-2016. We show that households at the top of the assets distribution have not increased their share of human wealth. Instead, the higher concentration of permanent income over the past decades is due to the growing importance of assets in lifetime wealth portfolios.

With
Brant Abbott

Abstract
We estimate the level and evolution of inequality in assets, human capital wealth and permanent income. Our definition of the latter variable does not rely on a specific utility function and imposes no restrictions on income processes. We characterize the distribution of human wealth using nonparametric identification results that allow for state-dependent stochastic discounting and unobserved heterogeneity. Accounting for the value of human capital delivers a different view of inequality. We find that (i) in 2016 the top 10\% shares of total wealth and permanent income were roughly 1/3 lower than the corresponding share of assets; (ii) between 1989 and 2016 the top 10\% shares of total wealth and permanent income grew significantly faster than the corresponding share of asset wealth. Hence, human wealth has had a mitigating influence on overall inequality but this mitigating effect has declined over time. We show that households at the top of the assets distribution have not increased their share of human wealth. Instead, higher concentration of permanent income is due to the growing importance of assets in lifetime wealth portfolios.
DRAFT (PDF)

Citation

@techreport{abbott-gallipoli-2018PI,
  title={Permanent-Income Inequality},
  author={Abbott, Brant and Gallipoli, Giovanni},
  year={2018},
  institution={University of British Columbia}
}