How Wealthy are the Rich?

Faculty/Professorship: International Economics  
Author(s): Schulz, Jan  ; Milaković, Mishael  
Title of the Journal: Review of Income and Wealth
ISSN: 0034-6586
Publisher Information: Oxford [u.a.] : Wiley-Blackwell
Year of publication: 2021
Issue: First published: 23 October 2021
Pages: 24
Language(s): English
DOI: 10.1111/roiw.12550
Underreporting and undersampling biases in top tail wealth, although widely acknowledged, have not been statistically quantified so far, essentially because they are not readily observable. Here we exploit the functional form of power law-like regimes in top tail wealth to derive analytical expressions for these biases, and use German microdata from a popular survey and rich list to illustrate that tiny differences in non-response rates lead to tail wealth estimates that differ by an order of magnitude, in our case ranging from 1 to 9 trillion euros. Underreporting seriously compounds the problem, and we find that the estimation of totals in scale-free systems oftentimes tends to be spurious. Our findings also suggest that recent debates on the existence of scale- or type-dependence in returns to wealth are ill-posed because the available data cannot discriminate between scale- or type-dependence, on one hand, and statistical biases, on the other hand. Yet both economic theory and mathematical formalism indicate that sampling and reporting biases are more plausible explanations for the observed data than scale- or type-dependence.
GND Keywords: Vermögensverteilung; Qualitatives Wachstum; Stochastik
Keywords: wealth inequality, stochastic growth, differential non-response, Hill estimator, tail index bias
DDC Classification: 330 Economics  
650 Management & public relations  
RVK Classification: QH 237     QK 800   
Type: Article
Release Date: 6. December 2021