Measuring Wealth: Income Capitalization with Heterogeneous Rates of Return

Berman Y., Iacono R., and Vesperoni A.

In many countries, the income distribution is well measured in tax data, whereas the wealth distribution remains unobserved and is typically proxied using survey data. This paper develops a method to estimate the unobserved wealth distribution from the observed income distribution. Our approach extends the standard income-capitalization method and, using the same data inputs, yields a richer set of estimates by allowing for heterogeneity in individuals’ capacities to generate returns. In an empirical application based on administrative tax return data, we provide alternative estimates of the distributions of wealth held in stocks and deposits by the Norwegian population.

Slides available here