Essays on wealth inequality and financial economics

Hjortfors Irie, Dje Bi Anges Magnus (2024) Essays on wealth inequality and financial economics. PhD thesis, London School of Economics and Political Science.

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Abstract

This thesis consists of three chapters on the role of finance in influencing the distribution of wealth. In the first chapter, I study how improvements in entrepreneurial financing affect top wealth inequality. On the one hand, improved financing allows entrepreneurs to scale up, raising top inequality. Simultaneously, extreme wealth trajectories for entrepreneurs become less likely as better financing improves risk sharing, lowering top inequality. It turns out that which of these effects dominates depends on the amount of economic activity that is reallocated to entrepreneurs from elsewhere in the economy. Top wealth inequality rises provided that this reallocation is large enough. In the second chapter, co-authored with Andrew Atkeson, we derive an analytical link between the fast dynamics of measured wealth inequality at the top on the one hand, and the prevalence of newly created fortunes on the other. Specifically, in the context of a random growth model of wealth accumulation, the shape of the top of the wealth distribution changes rapidly only if the pace with which new fortunes are created is fast. In the final chapter, I study whether the rise in measured wealth inequality documented in the Distributional National Accounts (DINA) can be accounted for by the combination of changing asset prices on the one hand, and household heterogeneity in portfolio compositions on the other. In particular, I study the gap between the share of wealth held by individuals at the top of the wealth distribution, and those individuals’ share of the associated capital income flows. I find that the size of this gap varies substantially over time. However, the steady rise in top wealth shares since the late 1970s is not primarily accounted for by a rise in the size of this gap, but by rising concentration in the associated capital income flows.

Item Type:	Thesis (PhD)
Additional Information:	© 2024 Dje Bi Anges Magnus Hjortfors Irie
Library of Congress subject classification:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
Sets:	Departments > Finance
Supervisor:	Martin, Ian and Moll, Benjamin
URI:	http://etheses.lse.ac.uk/id/eprint/4646

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