Wealth Inequality and Mobility - Evidence from the Forbes World Billionaires List

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: The paper analyses data from the “Forbes World Billionaires List” from 1996 to 2015. Decomposing the sample finds, that inherited wealth exhibits higher levels of inequality than self-made wealth. Overall inequality decreases and the inequality level of the self-made subgroup converges to the one of inherited wealth. In addition, self-made billionaires also experience higher social mobility. However, social mobility decreases on average within the observed sample. Both results are in line with the theories on wealth inequality which claim, that inherited wealth is a key driver of heavy Pareto tails in the wealth distribution. The results are based on the assumption that the wealth distribution obeys a power law. A goodness-of-fit test returns low and insignificant results for Pareto distributed data. Hereby, the self-made subsample displays a better Paretian behaviour. The overall results of the estimation point to measurement errors in the data, rather than a misspecified model. Therefore, the assumption that wealth obeys a power law distribution cannot be ultimately ruled out.

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