FINANSMARK-Finansmarkedet

Wealth inequality has risen to the forefront of current academic, popular, and policy debates. One important question is what the cause of this increase in wealth concentration is. In theory, there are three mechanisms that can result in high wealth inequality: persistent variation in labor income, returns to wealth, or saving behavior. The literature first focused on labor income inequality as the proximate cause of increasing wealth concentration, but years of research have shown that income inequality by itself is unable to explain the sharp increase in wealth inequality. During the past years, there has therefore been a shift towards focusing on heterogeneity in returns to wealth. Indeed, multiple papers have shown that models in which individuals are endowed with idiosyncratic returns to wealth that persist over time are able to explain the wealth concentration we find in the data. This project aims to unveil some of the underlying causes of heterogeneity in returns to wealth.

Across countries, a small fraction of the population controls a large and growing share of the economy's wealth. Thus, inequality has risen to the forefront of current academic, popular, and policy debates. The literature first focused on labor income inequality as the proximate cause of this increase in wealth concentration, but years of research have shown that income inequality by itself is unable to explain the sharp increase in wealth inequality. During the past years, there has therefore been a shift towards focusing on heterogeneity in returns to wealth. Indeed, multiple papers have shown that models in which individuals are endowed with idiosyncratic returns to wealth that persist over time are able to explain the wealth concentration we find in the data. This project aims to unveil the underlying causes of heterogeneity in returns to wealth. One potential candidate in explaining wealth returns heterogeneity is education. More sophisticated investors can search for and process information more effectively. Moreover, education in specific fields, such as economics or finance, specifically trains students in handling wealth (assets and liabilities) effectively, making the field of study potentially important. This project will offer a comprehensive causal quantitative assessment of the benefits of the of education for individual financial decision making. This will provide valuable information to the design of financial education reforms. We will combine data on returns to wealth with specific sources of random variation in education to provide causal estimates on the effects of education on financial return. Furthermore, we will investigate potential channels through which both the field of study and length of education influence returns. We lastly will assess how these effects of education on returns to wealth affect the evolution of the distribution of wealth.