The Life-Cycle Dynamics of Wealth Mobility

Audoly, Richard; McGee, Rory; Ocampo, Sergio; Paz-Pardo, Gonzalo

doi:10.59576/sr.1097

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The Life-Cycle Dynamics of Wealth Mobility

Abstract: We use 25 years of tax records for the Norwegian population to study the mobility of wealth over people’s lifetimes. We find considerable wealth mobility over the life cycle. To understand the underlying mobility patterns, we group individuals with similar wealth rank histories using agglomerative hierarchical clustering, a tool from statistical learning. The mobility patterns we elicit provide evidence of segmented mobility. Over 60 percent of the population remains at the top or bottom of the wealth distribution throughout their lives. Mobility is driven by the remaining 40 percent, who move only within the middle of the distribution. We show that the joint dynamics of income and wealth are inconsistent with standard models of savings. Instead, both persistent return and savings rates heterogeneity are necessary to account for wealth mobility, even for individuals away from the top of the wealth distribution. We show parental wealth is the key predictor of who is persistently rich or poor, while human capital is the main predictor of those who rise and fall through the middle of the distribution.

JEL Classification: D14; D15; E21;

https://doi.org/10.59576/sr.1097