Models of the Distribution of Wealth

In this paper we review some of the computable general equilibrium models based on unin-surable shocks to earnings that can be used to account for diierences in wealth holdings across households. We explore their ability to generate the key properties of the data (which we summarize by (a) a very small amount of wealth among the poorest 40% of the population (about 2% of total wealth), (b) a very large amount of wealth in the top groups (the top 1% holds 30% of total wealth while the top quintile holds almost 80%), and (c) a Gini Index larger than .75). We conclude that models based solely on earnings shocks cannot account for these properties of the data, and that other ingredients are needed. We review some of these ingredients that have started to be used in the literature.