Reparations and Persistent Racial Wealth Gaps / Job Boerma, Loukas Karabarbounis.

By:

Boerma, Job

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28468.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: We present a first formal, dynamic, economic analysis of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' investment experiences over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We evaluate whether different forms of reparations compensate for historical exclusions, which means restoring the long-run outcomes we would have observed in the absence of exclusions. We find that direct transfers that eliminate the racial gap in average wealth today do not lead to long-run wealth convergence, which is the long-run outcome without exclusions. The logic is that century-long exclusions lead Black dynasties to enter into reparations with pessimistic beliefs about risky returns and to forego investment opportunities. We show that investment subsidies are more effective than wealth transfers in eliminating the racial wealth gap.

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w28468 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

February 2021.

We present a first formal, dynamic, economic analysis of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' investment experiences over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, income, entrepreneurship, mobility, and beliefs about risky returns. We evaluate whether different forms of reparations compensate for historical exclusions, which means restoring the long-run outcomes we would have observed in the absence of exclusions. We find that direct transfers that eliminate the racial gap in average wealth today do not lead to long-run wealth convergence, which is the long-run outcome without exclusions. The logic is that century-long exclusions lead Black dynasties to enter into reparations with pessimistic beliefs about risky returns and to forego investment opportunities. We show that investment subsidies are more effective than wealth transfers in eliminating the racial wealth gap.