Wealth Inequality and the Financial Accumulation Process

Abstract

Previous theoretical and computational analyses demonstrate that uncorrelated variations in individual asset returns promote extreme inequality in financial wealth. This paper describes a standard individual-based computational model of this financial accumulation process and then extends it in order to expose other key influences on wealth inequality. We find large effects of individual behavior, cultural practices, tax policy, and technological change. Specifically, we present simulation experiments with heterogeneous saving rates, a stylized marriage institution, a wealth tax structured to mirror contemporary policy proposals, and variations in wage growth. These experiments demonstrate that modest concessions to realism have large effects on long-run wealth inequality in models of the financial accumulation process.