Title: Wealth Distribution and Interest Rates: Empirical Evidence for the US
Abstract: Capital market theory predicts that the wealth distribution should
a®ect interest rates. This paper empirically analyzes the relationship between the
wealth distribution and interest rates in the US. We use data on wealth inequality
from various sources. Measures of wealth inequality are linked positively to the real
commercial paper rate and to the real rate on government securities. This result
is consistent with predictions from capital market equilibrium models with moral
hazard. Accordingly, rich individuals can only commit credibly to providing e®ort if
the rate of return is not too high. When the rich are poorer, the rate of return has to
be lower in order to guarantee entrepreneurial e®ort. Capital demand will therefore
fall as inequality is reduced. The capital market is in equilibrium at a lower rate of
return.
Publication Year: 2001
Publication Date: 2001-12-01
Language: en
Type: preprint
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Cited By Count: 1
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