Does Demography Change Wealth Inequality?
In this article, we investigate the effect of demography on wealth inequality. We propose an economic growth model with overlapping generations in which individuals are altruistic towards their children and differ with respect to the age of their parent. We denote the age gap between the parent and their child as generational gap. The introduction of the generational gap allows us to analyze wealth inequality not only across cohorts but also within cohorts. Our model predicts that a decline in fertility raises wealth inequality within cohorts and, simultaneously, it reduces inequality at the population level (across cohorts). In contrast, increases in life expectancy result in a non-monotonic effect on wealth inequality by age and across cohorts.
We would like to acknowledge the comments and suggestions given by two anonymous referees. This project has received funding from the European Union’s Seventh Framework Program for research, technological development and demonstration under grant agreement no. 613247: “Ageing Europe: An application of National Transfer Accounts (NTA) for explaining and projecting trends in public finances”.
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