A Micro Perspective on r $>$ g. Iacono, R. & Palagi, E. Technical Report 2021/03, World Inequality Lab, January, 2021. Link File abstract bibtex For which segments of the net wealth distribution are returns to wealth higher than growth rates of income? Although Piketty's r $>$ g is conceived as a tool to highlight distributional concerns, it does not account for covariation between real rates of return and position in the net wealth distribution. By exploiting large-scale administrative data on estimated gross and net personal wealth in Norway from 2010 to 2018, this paper establishes the first micro-level analysis of the difference between the real return on wealth and the real growth rate of total pre-tax income across the entire net wealth distribution. We show that, for the top half of the distribution, the aggregate R - G underestimates its micro counterpart r - g, whilst the opposite happens for the bottom half, indicating that the micro r - g qualifies as a more precise measure to thoroughly analyze the dynamics of wealth inequality. We show as well that around 44% of the variation in r - g when moving up from the bottom to the top decile of the net wealth distribution is associated with scale dependence, whilst the residual variation can be attributed to persistent heterogeneity.

@techreport{IaconoPalagi2021,
type = {Working {{Paper}}},
title = {A Micro Perspective on r {$>$} g},
author = {Iacono, Roberto and Palagi, Elisa},
year = {2021},
month = jan,
number = {2021/03},
institution = {{World Inequality Lab}},
url = {https://wid.world/document/a-micro-perspective-on-rg-world-inequality-lab-wp-2021-03/},
urldate = {2022-04-01},
abstract = {For which segments of the net wealth distribution are returns to wealth higher than growth rates of income? Although Piketty's r {$>$} g is conceived as a tool to highlight distributional concerns, it does not account for covariation between real rates of return and position in the net wealth distribution. By exploiting large-scale administrative data on estimated gross and net personal wealth in Norway from 2010 to 2018, this paper establishes the first micro-level analysis of the difference between the real return on wealth and the real growth rate of total pre-tax income across the entire net wealth distribution. We show that, for the top half of the distribution, the aggregate R - G underestimates its micro counterpart r - g, whilst the opposite happens for the bottom half, indicating that the micro r - g qualifies as a more precise measure to thoroughly analyze the dynamics of wealth inequality. We show as well that around 44\% of the variation in r - g when moving up from the bottom to the top decile of the net wealth distribution is associated with scale dependence, whilst the residual variation can be attributed to persistent heterogeneity.},
keywords = {Methods of Estimation of Wealth Inequality,Trends in Aggregate Wealth and Wealth Inequality},
url_file = {IaconoPalagi2021.pdf}
}

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