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- Title
Stochastic dominance and thick-tailed wealth distributions.
- Authors
Di Pietro, Christian; Sorge, Marco M.
- Abstract
Right-skewed and thick-tailed wealth distributions have been documented as an empirical regularity across space and time. A key mechanism for explaining these distributional features is proportional random growth. We investigate the comparative statics of a well-defined class of random growth models when allowing for stochastically ordered shifts in the wealth return process. An order-contingent monotone comparative statics property is identified, according to which pure increases in risk (e.g. higher volatility of capital returns) foster top wealth concentration whereas first-order stochastically dominated shifts in the return process (induced by e.g. proportional capital income taxation) rather lower inequality at the upper end of the distribution. Our analysis points to the potentially ambiguous effects on top wealth inequality of introducing or modifying capital income tax treatments in the presence of stochastic returns.
- Subjects
STOCHASTIC dominance; WEALTH; INCOME inequality; INCOME tax; RATE of return
- Publication
Journal of Economics, 2018, Vol 123, Issue 2, p141
- ISSN
0931-8658
- Publication type
Article
- DOI
10.1007/s00712-017-0544-6