Dionissi Aliprantis
Daniel Carroll
Eric Young

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.

Publication Type
Working Paper
File Description
First version, November 23, 2022
JEL Codes
D31: Personal Income, Wealth, and Their Distributions
D58: Computable and Other Applied General Equilibrium Models
E21: Macroeconomics: Consumption; Saving; Wealth
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
J70: Labor Discrimination: General
racial inequality
wealth dynamics