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Older or wealthier? The impact of age adjustments on the wealth inequality ranking of countries

Working Paper 2009-113


Differences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross-section data, we may confuse older with wealthier. We propose a new method to adjust for age effects in cross-sections, which eliminates transitory wealth inequality due to age, yet preserves inequality arising from other factors. This new method is superior to existing methods, like the much used Paglin-Gini, which is shown to have several problems. A new cross-country comparable database reveals that the choice of method is empirically important: Existing methods yield erroneous wealth inequality rankings of countries.

Authors: .

Keywords: Wealth inequality, Life cycle, Age adjustments, Gini coeffcient.
JEL: D31, D63, D91, E21.