Benhabib, Jess;
Cui, Wei;
Miao, Jianjun;
(2024)
Capital income jumps and wealth distribution.
Quantitative Economics
, 15
(4)
pp. 1197-1247.
10.3982/QE2096.
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Abstract
Compared to the distributions of earnings, the distributions of wealth in the US and many other countries are strikingly concentrated on the top and skewed to the right. To explain the income and wealth inequality, we provide a tractable heterogeneous-agent model with incomplete markets in continuous time. We separate illiquid capital assets from liquid bond assets and introduce jump risks to capital income, which are crucial for generating a thicker tail of the wealth distribution than that of the labor income distribution. Under recursive utility, we derive optimal consumption and wealth in closed form and show that the stationary wealth distribution has an exponential right tail that closely approximates a power-law distribution. Our calibrated model can match the income and wealth distributions in the US data including the extreme right tail of the wealth distribution
| Type: | Article |
|---|---|
| Title: | Capital income jumps and wealth distribution |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.3982/QE2096 |
| Publisher version: | https://doi.org/10.3982/QE2096 |
| Language: | English |
| Additional information: | © The Author(s), 2025. This is an open access article distributed in accordance with the Creative Commons Attribution Non Commercial (CC BY-NC 4.0) license, which permits others to distribute, remix, adapt, build upon this work non-commercially, and license their derivative works on different terms, provided the original work is properly cited, appropriate credit is given, any changes made indicated, and the use is non-commercial. See: http://creativecommons.org/licenses/by-nc/4.0/. |
| Keywords: | Wealth distribution, inequality, heterogeneous agents, incomplete markets, exponential tail, C61, E21, E22, |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL SLASH UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10195805 |
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