Modelling Wealth Inequality: A Structural Vector Autoregression Approach

In recent years, an increasing number of studies has been undertaken to estimate inequality and to find out its determinants. Most of the works have been executed on income inequality data because wealth is notably harder to estimate. In this study the impact of economic growth and financial development on wealth concentration is examined. There were collected yearly data on Russian economic system covering the period 1995-2014. A set of stochastic difference equations (structural vector autoregression, SVAR) was implemented to represent the dynamics of economic and financial system and their impact on wealth concentration were studied. Our findings suggest that in the short and long run, even if at the very beginning the development of financial system increases the inequality, both dynamics decrease the inequality, while in the middle the two tend to exacerbate the concentration of wealth.