Abstract
This paper employs the benchmark heterogeneous-agent macroeconomic model to examine drivers of the rise in wealth inequality in the U.S. over the last thirty years. By far the most important driver is the significant drop in tax progressivity starting in the late 1970s. The sharp observed increases in earnings inequality and the falling labor share over the recent decades, on the other hand, fall far short of accounting for the data. Changes in asset returns and in the inflation rate help to account for the shorter-run dynamics in wealth inequality.
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Host: Kjetil Storesletten