Economics in a picture
The population ageing process accounts for a considerable part of the increase of wealth inequality across age groups
The gap between the average wealth of the part of the population with 55 or more years of age and that of the younger cohorts (from 20 to 54 years) has significantly increased over the last three decades: for the US in 2016 it was more than twice the one observed in 1989. Further, the age structure of the wealthy has changed over time, as the 55+ group are now roughly three fourths of the top 5% wealthiest households, up from only half in 1989.
Using a general equilibrium model with an overlapping generation structure which encompasses household heterogeneity in wealth and labour productivity, we show that the ageing process of the last thirty years – a longer life expectancy and a lower fertility rate – has generated an increase in wealth inequality across age groups which is between one third and one half of that actually observed. This process accounts for more than one third of the rise in the share of the 55+ group within the top 5% wealthiest households. Various channels contribute to these results, including life-cycle motives, the change in disposable income of retirees, and price effects.
Prepared by António Antunes and Valerio Ercolani. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal, Banca d’Italia or the Eurosystem.
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