Why is wealth inequality often more pronounced than income inequality?

Wealth inequality is often more pronounced than income inequality due to the cumulative nature of wealth and its intergenerational transfer.

Wealth, unlike income, can accumulate over time and be passed down from generation to generation. This means that individuals or families who have been wealthy for a long time can continue to build on their wealth, creating a significant gap between them and those who are less fortunate. This is particularly true in societies where there are significant barriers to social mobility, such as limited access to quality education or discrimination based on race or gender.

Income, on the other hand, is a flow variable that represents the amount of money an individual or household earns in a given period, usually a year. While income can certainly contribute to wealth accumulation, it is not the only factor. Other factors such as savings rates, investment returns, and inheritances also play a significant role. Therefore, even if income distribution were perfectly equal, wealth distribution could still be highly unequal due to these other factors.

Moreover, wealth can generate income through interest, dividends, and capital gains, which can further exacerbate wealth inequality. This is because those who are already wealthy have more resources to invest and can therefore earn more income from their wealth. This phenomenon, known as the 'wealth-income feedback loop', can lead to a self-reinforcing cycle of increasing wealth inequality.

Finally, tax policies can also contribute to wealth inequality. Many countries have tax systems that disproportionately benefit the wealthy, such as lower tax rates on capital gains compared to income or loopholes that allow for wealth to be passed down through generations with little or no tax. These policies can further widen the gap between the rich and the poor, leading to even greater wealth inequality.

In conclusion, while income inequality is certainly a concern, wealth inequality is often more pronounced due to the cumulative nature of wealth, its intergenerational transfer, the wealth-income feedback loop, and tax policies that disproportionately benefit the wealthy.