First citation in articleGoogle Scholar

Previous articleNext article No AccessExcess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open EconomiesRishabh Aggarwal, Adrien Auclert, Matthew Rognlie, and Ludwig StraubRishabh AggarwalStanford University, United States of America Search for more articles by this author , Adrien AuclertStanford University, CEPR, and NBER, United States of America Search for more articles by this author , Matthew RognlieNorthwestern University and NBER, United States of America Search for more articles by this author , and Ludwig StraubHarvard University, CEPR and NBER, United States of America Search for more articles by this author PDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by NBER Macroeconomics Annual Volume 372023 Sponsored by the National Bureau of Economic Research (NBER) Article DOIhttps://doi.org/10.1086/723586 © 2023 National Bureau of Economic Research. All rights reserved.PDF download Crossref reports no articles citing this article.

We analyze the magnitude and persistence of the racial wealth gap using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous beliefs about risky returns, reflecting differences in dynasties' investment experiences over time. Feeding the exclusion of Black dynasties from labor and capital markets into the model as the only driving force, we find that the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We explore how the future trajectory of the racial wealth gap might change in response to various policies. Wealth transfers to all Black dynasties that eliminate the average wealth gap today do not lead to long-run wealth convergence. The logic is that centuries-long exclusions lead Black dynasties to hold pessimistic beliefs about risky returns and to forgo investment opportunities after the wealth transfer. Investment subsidies toward Black entrepreneurs are more effective than wealth transfers in permanently eliminating the racial wealth gap.