Where Does Wealth Come From? The Determinants of Wealth over the Lifetime; Paul Devereux (University College of Dublin)

Abstract

There has been much attention given to rising wealth inequality in recent decades.  However, understanding this trend requires an understanding of where wealth comes from.  Using administrative data from Norway, we create a measure of potential wealth—which abstracts from differential consumption and spending behavior—to examine the role played by different components of wealth in the distribution of potential wealth.  We then examine the relationship between potential wealth and observed net wealth.  We find that persons in different parts of the potential wealth (or actual wealth) distribution get their wealth from very different sources. Labor income is the most important determinant of wealth, except among the top 1% where capital income and capital gains on financial assets become important. Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution.