Purchase Print Copy

 FormatList Price
Add to Cart Paperback33 pages Free

This paper summarizes the principal facts about wealth inequality and how it has been changing during the last fifteen years. A very sharp rise in the inequality in household wealth has taken place at least since the mid-1980s. The author first examines the relation between wealth and income by illustrating how wealth is distributed within and across income groups and then attempts to uncover some reasons why wealth inequality has been expanding so rapidly. The reasons examined include the receipt of inheritances, rising income inequality, and capital gains, particularly those due to appreciation in equity markets. The subsequent impact of these capital gains on financial savings in other forms is also investigated. Two of the possible explanations -- the receipt of inheritances and the uneven savings generated by the simultaneous rise in income inequality -- were rejected as likely to be quantitatively unimportant. The principal culprit lies instead in the third reason: the uneven receipt both within and across income classes of capital gains, particularly those due to sharp appreciation in equity markets. Capital gains in stocks then included households to reduce their financial savings in other assets and therefore may have contributed to the recent secular decline in household savings. Throughout, this research relies on two longitudinal surveys that have pioneered the incorporation of household wealth modules into multipurpose social science surveys: the Panel Survey of Income Dynamics (PSID) and the Health and Retirement Survey (HRS).

Research conducted by

Originally published in: The Causes and Consequences of Increasing Inequality, Finis Welch, ed., Chicago : University of Chicago Press, 2001, pp. 83-115.

This report is part of the RAND Corporation reprint series. The Reprint was a product of the RAND Corporation from 1992 to 2011 that represented previously published journal articles, book chapters, and reports with the permission of the publisher. RAND reprints were formally reviewed in accordance with the publisher's editorial policy and compliant with RAND's rigorous quality assurance standards for quality and objectivity. For select current RAND journal articles, see External Publications.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.