The Dynamics of the Racial Wealth Gap
What drives the dynamics of the racial wealth gap? We answer this question using a dynamic stochastic general equilibrium heterogeneous-agents model. Our calibrated model endogenously produces a racial wealth gap matching that observed in recent decades along with key features of the current cross-sectional distribution of wealth, earnings, intergenerational transfers, and race. Our model predicts that equalizing earnings is by far the most important mechanism for permanently closing the racial wealth gap. One-time wealth transfers have only transitory effects unless they address the racial earnings gap, and return gaps only matter when earnings inequality is reduced.
Aliprantis, Dionissi, Daniel R. Carroll, and Eric R. Young. 2022. “The Dynamics of the Racial Wealth Gap.” Federal Reserve Bank of Cleveland, Working Paper No. 19-18R. https://doi.org/10.26509/frbc-wp-201918r