Inequality of Opportunity in Wealth: Levels, Trends, and Drivers

Daniel Graeber, Viola Hilbert () and Johannes König ()
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Viola Hilbert: DIW Berlin, BSE
Johannes König: DIW Berlin, BSE

No 69, CEPA Discussion Papers from Center for Economic Policy Analysis

Abstract: While inequality of opportunity (IOp) in earnings is well studied, the literature on IOp in individual net wealth is scarce to non-existent. This is problematic because both theoretical and empirical evidence show that the position in the wealth and income distribution can significantly diverge.We measure ex-ante IOp in net wealth for Germany using data from the Socio-Economic Panel (SOEP). Ex-ante IOp is defined as the contribution of circumstances to the inequality in net wealth before effort is exerted. The SOEP allows for a direct mapping from individual circumstances to individual net wealth and for a detailed decomposition of net wealth inequality into a variety of circumstances; among them childhood background, intergenerational transfers, and regional characteristics. The ratio of inequality of opportunity to total inequality is stable from 2002 to 2019. This is in sharp contrast to labor earnings, where ex-ante IOp is declining over time. Our estimates suggest that about 62% of the inequality in net wealth is due to circumstances. The most important circumstances are intergenerational transfers, parental occupation, and the region of birth. In contrast, gender and individuals’ own education are the most important circumstances for earnings.

Keywords: inequality; wealth; inequality of opportunity; decomposition (search for similar items in EconPapers)
JEL-codes: D31 D63 J24 J62 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-eur, nep-lma and nep-ltv
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https://doi.org/10.25932/publishup-60967 (application/pdf)

Related works:
Working Paper: Inequality of Opportunity in Wealth: Levels, Trends, and Drivers (2023)
Working Paper: Inequality of Opportunity in Wealth: Levels, Trends, and Drivers (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pot:cepadp:69

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