Inequality, Stock Market Participation, and the Equity Premium
Over the last 25 years, labor income inequality has increased significantly; one may expect this would lead to significant increases in wealth and consumption inequality. However the increase in wealth inequality has been relatively moderate and consumption inequality has barely increased at all. At the same time, stock market participation has increased and the equity premium has declined. I solve a general equilibrium model to show that there is an intimate link between market participation and inequality. When wage inequality increases without a change to participation costs, the model predicts large increases in wealth and consumption inequality and a drop in market participation. However, if in addition, participation costs fall to match the increase in participation observed in the data, the model predicts changes in wealth and consumption inequality quantitatively similar to those observed in the data, as well as a large decline in the equity premium.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.