Essays on Wealth Inequality and Macroeconomics

The role of credit on wealth inequality in the USA: 1980 – 2012 In the USA, the share of total household wealth held by the richest 1% increased from 23.5 % in 1980 to 41.8% in 2012. A sharp reduction in the saving rate of the bottom 90% accounts for approximately 40% of this change. I construct a quantitative model that, under a reasonable calibration, is able to replicate this fact. I then use the model to decompose the total variation among some of the most likely candidates: (i) changes in credit conditions, (ii) increase in the concentration and riskiness of labor income and, (iii) reforms to the tax code. This decomposition exercise shows that, in the context of my model, the relaxation of the borrowing constraint explains approximately 45% of the increase in the share of wealth going to the top 1%. I also show that, in the absence of the credit constraint, the exogenous changes under (ii) and (iii) would have brought about a counterfactual increase in the aggregate saving rate. The effect of housing on the distribution of wealth in the USA. Wealth inequality increased dramatically in the previous 40 years. We construct a heterogeneous agent model with two types of assets: housing and productive capital and evaluate the effect of the observed increase in the price of housing on the saving behavior of different groups and hence on the wealth distribution. A percentage of the equity in housing can be posted as collateral to issue non-mortgage debt and the increase in the price of housing effectively relaxed the borrowing constraints and increased the permanent income of households. The result is an increase in Non-Mortgage debt for the households that were originally constrained in line with the findings of Mian and Sufi (2014)