Portfolio choices, Asset returns and wealth inequality: evidence from China

This paper empirically investigates the relationship between household porfolio choices and wealth distribution with micro-survey data in China We show that due to decreasing relative risk aversion, the rich people tend to hold more complicated portfolios and own high-yield assets of stocks, housing and private businesses. As a result, the return for household portfolio increases with wealth, with the well-heeled gains more over the poor in the capital market. This therefore serves as a reason for wealth concentration and decrease of social mobility. Taxation on capital income slows down the growing process of inequality.