Congratulations to CeRP affiliate Raffaele Corvino, whose project “Investment Skills and Wealth Inequality” has been awarded with a research grant by the Observatoire de l’Epargne Européenne (OEE).
Raffaele Corvino will carry out the project with Francesco Ruggiero (Bank of Italy) and Alessandro Ruggieri (University of Nottingham).
Inequality has dramatically increased over the last decades. According to the Oxfam report 2022, the gap between the richest and poorest is impressive: since 1995 the top 1% have accumulated nearly 20 times the wealth of the bottom 50% of the world population. Policy-makers and economists are struggling to fully understand what can explain the thick right tail of wealth distribution.
In this project, we investigate whether public education may reduce wealth inequality by allowing (unskilled) individuals to undertake better investment decisions. Specifically, we uncover the link between individual skills, public education, portfolio choices and wealth inequality, both theoretically and empirically. Using data at the individual level from the Dutch National Bank, we offer suggestive evidence about the increasing gap in both the level and the return to wealth over the life-cycle across individuals with heterogeneous education background. We rationalize this evidence using a structural model with heterogeneous individuals and a welfare-maximizing public government.
The key model insight is that public education improves individual evaluation skills and prevents the otherwise unskilled investors from holding on detrimental investment decisions, thus ultimately closing the gap between the top and the bottom tails of the wealth distribution. We plan to extend our analysis to other European countries. We will collect information about personal characteristics, background, saving decisions and wealth, and we will use the data to estimate the model. Our main objective is to deliver policy-implications to tackle the worldwide limited stock market participation and huge wealth inequality observed in the data.
The project will last one year and will be part of the broad investigation, funded by the OEE, about the new savings behaviors of the young generations and the link with their socio-professional background.