2021-10-21-IMF-Safe_Asset_Demand,_Global_Capital_Flows_and_Wealth_Concentration_84页_1mb

Introduction: The US occupies a central role in global finance, supplying safe assets and funding risky investments. Financial globalization, through foreign capital flows, influences US household wealth distribution by pressing up domestic asset prices and altering portfolio allocations.

Key Findings:

• Financial globalization initially increases wealth inequality via capital gains for affluent households.
• In the long run, this effect may reverse due to lower expected returns on domestic assets.
• Asymmetric portfolio rebalancing—richer households shift more to risky foreign assets—can sustain wealth concentration.
• Quantitatively, global financial integration explains 34% to 55% of the rise in the top one percent's wealth share (1989–2016).
• Cross-country effects vary, with financial centers like the US experiencing sharper wealth concentration.

Mechanism:

• Short-term: Revaluation effect from foreign capital inflows.
• Long-term: Decline-in-return and rebalancing effects. The net impact depends on the relative strength of these forces.

Conclusion: Financial globalization drives wealth concentration in developed economies, especially financial hubs. Policies must address these dynamics to mitigate inequality.