Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures.

Abstract

Differences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross-section data, a concern is that one confuses older with wealthier. We propose a new method to adjust for age effects in cross-sections, which eliminates wealth inequality due to age, yet preserves inequality arising from other factors. Using a new cross-country comparable database, we examine the impact of age adjustments on wealth inequality across countries and over time. We find that the most widely used method yield a substantially different picture of age adjusted wealth inequality than our method.Wealth inequality; Life cycle; Age adjustments; Gini coefficient.