Full Citation
Title: Investment Opportunities and the Sources of Lifetime Inequality
Citation Type: Miscellaneous
Publication Year: 2016
ISBN:
ISSN:
DOI:
NSFID:
PMCID:
PMID:
Abstract: How much of the dispersion in lifetime earnings, wealth, consumption, and ultimately, utility or well-being is resolved early in life (prior to working life) vs. later? This critical question has received much attention, with influential recent contributions coming from Keane and Wolpin (1997), Storesletten et al. (2005), and Huggett et al. (2011). The goal of this paper is to provide quantitative measures of how the full range of households' investment (and financing) opportunities matters for the fraction of lifetime inequality determined relatively early in life relative to later on. We focus on the role played by three specific investment opportunities: risky and lumpy college education, risky equity, and costly borrowing. To our knowledge, our work is the first to provide quantitative measures of the importance of each in the temporal resolution of lifetime inequality and the importance of the interaction between them. We find, first, that nearly all income inequality is attributable to human * The views expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Richmond or the Federal Reserve System. ΒΆ Board of Governors of the Federal Reserve System, ivan.vidangos@frb.gov 1 capital variation as of age 23. In other words, for individuals who have likely completed major educational investments, our results suggest that financial opportunities play only a minor role in altering inequality. Second, we find that the option to invest in high-return, high-risk assets meaningfully increases the importance of initial inequality, whereas the ability to borrow lowers the importance of initial inequality.
Url: https://economicdynamics.org/meetpapers/2016/paper_1177.pdf
User Submitted?: No
Authors: Athreya, Kartik; Ionescu, Felicia; Neelakantan, Urvi; Vidangos, Ivan
Publisher: FRB Richmond
Data Collections: IPUMS CPS
Topics: Other
Countries: