Public pensions: To what extent do they account for Swedish wealth inequality?

Klein, Paul and Domeij, David (2002) Public pensions: To what extent do they account for Swedish wealth inequality? Review of Economic Dynamics, 5 (3), 503-534. (doi:10.1006/redy.2002.0157).

Record type: Article

Abstract

Sweden's distribution of disposable income is very even, with a Gini coefficient of just 0.31. Yet its wealth distribution is extremely unequal, with a Gini coefficient of 0.79. Moreover, Swedish wealth inequality is, to a large extent, driven by the large fraction of households with zero or negative wealth. In this paper, we investigate to what extent the redistributive public pension scheme is responsible for these features of the data. To address this problem, we study the properties of two overlapping generations economies with uninsurable idiosyncratic risk. The first has a pension system modeled on the actual system; the second has no public pension scheme at all. Our findings support the view that the public pension scheme is, to a large extent, responsible for the features of the data that we focus on. Journal of Economic Literature Classification Numbers: E13, D31, H55.

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