Type Dependence and Scale Dependence in Top Wealth Concentration

Abstract

In random growth models, top wealth concentration arises from type dependence, a persistent type that compounds wealth faster, or scale dependence, growth depending on current wealth alone. Quantitative models do not identify their relative importance from wealth data, and wealth inequality and one-period wealth mobility cannot distinguish them. Wealth over several periods distinguishes them under i.i.d. labor income, but persistent labor income reproduces the shape of a permanent type’s wealth mobility profile. I fit the model to the 2022 U.S. top 10 wealth share and to the dispersion of PSID wealth growth. Where it matches PSID wealth mobility, scale dependence accounts for the larger share of top wealth concentration unless the type is very persistent and wide, where type dependence accounts for 41 to 56 percent. At the narrow, persistent types of most existing calibrations, the fitted model attributes at most 18 percent to type dependence.