We explore the long-run macroeconomic implications of rising inequality, distinguishing between increased polarization in labor earnings, increased polarization in asset returns, and increased correlation between the two income components. We show that the origins of income inequality are...

We explore the long-run relationship between income risk, inequality, and the macroeconomy in an overlapping-generations model in which households face uncertain streams of labor income and returns on their savings. To manage those risks, households can apportion their savings to a bond, whose...