TY - JOUR AU - Fagereng, Andreas AU - Guiso, Luigi AU - Malacrino, Davide AU - Pistaferri, Luigi TI - Heterogeneity and Persistence in Returns to Wealth JF - National Bureau of Economic Research Working Paper Series VL - No. 22822 PY - 2016 Y2 - November 2016 DO - 10.3386/w22822 UR - http://www.nber.org/papers/w22822 L1 - http://www.nber.org/papers/w22822.pdf N1 - Author contact info: Andreas Fagereng Research Department Statistics Norway Pb 8131 0033 Oslo, Norway E-Mail: afagereng@gmail.com Luigi Guiso Axa Professor of Household Finance Einaudi Institute for Economics and Finance Via Sallustiana 62 - 00187 Rome, Italy Fax: 39 06 4792 4858 E-Mail: luigi.guiso55@gmail.com Davide Malacrino INTERNATIONAL MONETARY FUND 700 19th Street NW Washington, DC 20431 E-Mail: DMalacrino@imf.org Luigi Pistaferri Department of Economics 579 Serra Mall Stanford University Stanford, CA 94305-6072 Tel: 650/724-4904 Fax: 650/725-5702 E-Mail: pista@stanford.edu AB - We provide a systematic analysis of the properties of individual returns to wealth using twenty years of population data from Norway’s administrative tax records. We document a number of novel results. First, in a given cross-section, individuals earn markedly different returns on their assets, with a difference of 500 basis points between the 10th and the 90th percentile. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth. Fourth, returns have an individual permanent component that accounts for 60% of the explained variation. Fifth, for wealth below the 95th percentile, the individual permanent component accounts for the bulk of the correlation between returns and wealth; the correlation at the top reflects both compensation for risk and the correlation of wealth with the individual permanent component. Finally, the permanent component of the return to wealth is also (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate. ER -