## Heterogeneity and Persistence in Returns to Wealth

_IMF Working Papers, July 27, 2018_

## Source details

**Canonical URL:** [Heterogeneity and Persistence in Returns to Wealth](https://www.imf.org/en/publications/wp/issues/2018/07/27/heterogeneity-and-persistence-in-returns-to-wealth-46095)

## Other formats

- [Markdown version](/en/publications/wp/issues/2018/07/27/heterogeneity-and-persistence-in-returns-to-wealth-46095/index.md)
- [Structured JSON version](/en/publications/wp/issues/2018/07/27/heterogeneity-and-persistence-in-returns-to-wealth-46095/index.json)
- [Bundle manifest](/en/publications/wp/issues/2018/07/27/heterogeneity-and-persistence-in-returns-to-wealth-46095/bundle-manifest.json)

## Bibliographic details
- Authors: Andreas Fagereng, Luigi Guiso, Davide Malacrino, Luigi Pistaferri
- Published: July 27, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484370063.001

---

### Summary
- Systematic analysis of individual returns to wealth using twelve years of population data from Norway’s administrative tax records.
- Documents novel results on the distribution, determinants, and persistence of wealth returns and discusses implications for the wealth inequality debate.

### Key findings on heterogeneity
- Individuals earn markedly different average returns:
  - Financial assets: a standard deviation of 14%.
  - Net worth: a standard deviation of 8%.
- Heterogeneity in returns is not solely due to asset-allocation between safe and risky assets:
  - Returns are heterogeneous even within asset classes.
- Returns are positively correlated with wealth:
  - Moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points.
  - The same exercise for return to net worth increases the return by 17 percentage points.

### Persistence and mechanisms
- Wealth returns exhibit substantial persistence over time.
- The observed persistence partly reflects:
  - Stable differences in risk exposure.
  - Asset scale differences.
- The observed persistence also reflects:
  - Persistent heterogeneity in sophistication and financial information.
  - Entrepreneurial talent.

### Intergenerational correlation
- Wealth returns are (mildly) correlated across generations.

### Implications for policy and the wealth inequality debate
- Heterogeneous and persistent returns to wealth imply that differences in returns across individuals and generations can amplify wealth concentration.
- Policy considerations arising from findings include addressing:
  - Information and sophistication gaps in financial markets.
  - Barriers to entrepreneurial activity and scaling.
  - Channels through which higher returns at higher wealth percentiles feed into long-run inequality dynamics.

*By Andreas Fagereng, Luigi Guiso, Davide Malacrino, and Luigi Pistaferri; July 27, 2018 — IMF Working Paper.*

---

## Content in this bundle

- **Heterogeneity and Persistence in Returns to Wealth, WP/18/171, July 2018**
  - [Heterogeneity and Persistence in Returns to Wealth, WP/18/171, July 2018 (Markdown version)](/-/media/files/publications/wp/2018/wp18171.pdf.md){rel="alternate" type="text/markdown"}
  - [Heterogeneity and Persistence in Returns to Wealth, WP/18/171, July 2018 (PDF)](/-/media/files/publications/wp/2018/wp18171.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2018/07/27/heterogeneity-and-persistence-in-returns-to-wealth-46095_