Working Paper 2019-506
The literature has typically found that socio-economic factors (age, education, income, labor status, household structure) are irrelevant to explain the large cross-country disparities in wealth. As a result, institutions and other unobserved factors have received all the credit. Here, we propose to focus on one type of wealth inequality, the part of overall wealth inequality that is explained by parental background and inheritances (inequality of opportunity -IO- in wealth). By means of a counterfactual decomposition method (DiNardo et al., 1996), we show that imposing the distribution of socio-economic factors in the U.S. (2016) into Spain (2014) has little effect on overall wealth inequality. However, socio-economic factors play an important role when wealth IO is considered. Moreover, the Shapley decomposition shows that the distribution of age, education and income in the U.S. contribute to increase wealth IO in the counterfactual, whereas the opposite happens with the distribution of labor status and household structure. These results are robust to different types of wealth (total, financial or real state), inequality indices (MLD or Gini coefficient), IO measures (absolute or relative) and samples (total or above 55 years).
Authors: Pedro Salas-Rojo, Juan Gabriel Rodríguez.