To Have or Not to Have: Understanding Wealth Inequality

Title: To Have or Not to Have: Understanding Wealth Inequality

Preliminary abstract: "What determines differences in wealth accumulation across households? We document two empirical facts about the U.S. wealth distribution and portfolio composition. First, three main asset classes -- home equity, business equity, and retirement accounts -- account for 70% of household wealth. Second, the variation along the income distribution for each of these assets is mainly accounted for by differences in the extensive rather than the intensive margin. Differences in wealth accumulation are a question of to have or not to have. Guided by this fact, we develop a novel model of wealth accumulation with a focus on asset market participation. We allow a household's labor market situation to determine her opportunity for asset market participation. We demonstrate that the calibrated model closely accounts for the joint distribution of income and wealth. Through the lens of theory, large income-dependent financial frictions shape the differences in wealth accumulation across households. We show that a policy facilitating access to the housing market improves wealth accumulation, albeit only for the middle class."