UiS Business School Seminar: Wealth and Income Mobility over the Life-Cycle

Zoom: https://stavanger.zoom.us/j/65625096097?pwd=aWZ3Qm00VkRWWXZCamhGYlZjTHJpUT09

ID: 656 2509 6097

Password: 465243

Abstract:

How do wealth and income evolve over the life-cycle? We address this question using Swiss tax data from the canton of Bern (which cover 13% of the Swiss population) over the years 2002-2018. We first document the joint distribution of income and wealth and find a high correlation between the two distribution in the tails. This high correlation is also reflected in the ratio of private wealth to income along the income distribution. In line with aggregate wealth-income ratios in Switzerland, this ratio has increased over time. However, this ratio varies considerably over the life cycle, peaking after retirement, but decreasing only slowly afterwards. At the same time, we find that older cohorts had lower wealth-income ratios than younger cohorts at the same age, again indicating the increasing importance of wealth relative to income.

Next, we turn to intra-generational rank mobility in income and wealth. Wealth mobility is substantially lower than income mobility. Persistence in wealth rank is especially strong at the tails: the bottom 20% seem to be stuck in a wealth trap, while those in the top 1% hardly ever leave the top 10% at all, unless they die. After 5 years, 71% are still in the top 1%, another 15% moved down within the top 10%. Only about 1% moves below the top 10%, with the remaining 13% leaving the sample (i.e., they died or left the canton of Bern). This contrasts with top earners, of whom about 53% remain in the top 1%, but 10% move below the top 10%. OLS rank-rank regrssions over the entire sample confirm the higher mobility in income compared to wealth. Wealth shocks in the form of inter-vivos gifts and inheritances increase wealth mobility, while their effects on income mobility are mixed.