A Becker–Tomes model with investment risk

Research Article
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Abstract

Recent studies find that sufficiently volatile idiosyncratic investment risk plays an important role in generating wealth inequality. I introduce idiosyncratic investment risk into the Becker and Tomes (J Polit Econ 87:1153–1189, 1979) model and find an explicit expression of the stationary wealth distribution in this simple model. This explicit expression brings us new insights of how bequest motives and estate taxes influence wealth distributions. I find that inheritance increases wealth inequality in models with idiosyncratic investment risk through exaggerating labor earnings uncertainty, while inheritance decreases wealth inequality in the Becker and Tomes (1979) model through mitigating labor earnings uncertainty. This causes estate taxes to have different impacts on wealth inequality in my model and the Becker and Tomes (1979) model.

Keywords

Investment risk Estate taxes Bequest motives Wealth inequality The Becker–Tomes model 

JEL Classification

D31 H20 

Supplementary material

199_2018_1103_MOESM1_ESM.pdf (155 kb)
Supplementary material 1 (pdf 155 KB)

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.School of International Trade and EconomicsUniversity of International Business and EconomicsBeijingChina

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