We study the long-run effect of interest rates on wealth inequality. While low rates de- crease the average growth rate of existing fortunes, we argue that they increase the growth rate of new fortunes by making it cheaper to raise capital. To understand which effect dom- inates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the average equity issuance rate and leverage of individuals reaching the right tail of the distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. We conclude that the secular decline in discount rates has played a key role in the recent increase of top wealth inequality.
For more information and to register for this event, please visit the Stern Finance website or contact Lindsay Anderson.