Cross-Country Differences in Wealth-Income Ratios
Cross-Country Differences in Wealth-Income Ratios

Summary/Abstract: Why are wealth-income ratios higher in some countries than in other countries? To address this question, I present a simple model economy from which I derive a formula for wealth-income ratios. This formula should look familiar to economists as it resembles a famous equation known as the Gordon growth formula. The new formula shows that wealth-income ratios are determined by labor share, saving rates, discount rates, and growth rates. Applying the formula to a large cross-country data set reveals that cross-country differences in wealth-income ratios are mostly generated by cross-country differences in labor share and discount rates. I discuss factors that may have contributed to cross-country differences in labor share and discount rates.

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