The Dynamics of the Racial Wealth Gap

By Dionissi Aliprantis, Daniel Carroll and Eric Young

http://d.repec.org/n?u=RePEc:hka:wpaper:2022-044&r=dge

What drives the dynamics of the racial wealth gap? We answer this question using a dynamic stochastic general equilibrium heterogeneous-agents model. Our calibrated model endogenously produces a racial wealth gap matching that observed in recent decades along with key features of the current cross-sectional distribution of wealth, earnings, intergenerational transfers, and race. Our model predicts that equalizing earnings is by far the most important mechanism for permanently closing the racial wealth gap. One-time wealth transfers have only transitory effects unless they address the racial earnings gap, and return gaps only matter when earnings inequality is reduced.

This is another paper that steps out of usual DSGE modelling topics to address important questions for which that type of approach is particularly well suited for. Even if you disagree with some of the assumptions or the calibration, it lays down a framework from where the discussion should start. Very promising.