Measures Of Wealth Inequality Research Articles

Monetary policy and wealth inequality

AbstractThis thesis examines how monetary policy shocks affect wealth inequality in Australia. I analyse how a monetary policy shock, through asset price responses, affects household balance sheets and wealth inequality measures. I find that contractionary monetary policy reduces the wealth gap, but also disproportionately increases the wealth share of the most affluent Australians. This is driven largely by the response of house prices to an increase in the central bank's policy rate. I use a novel methodology to overcome the data limitations that usually impede studies of wealth inequality, and I produce results with implications for central bankers and policymakers. My results are robust to numerous lag specifications, modelling techniques and identification strategies.

Will wealth inequality decrease happiness?-Empirical evidence from China.

This article delves into the broad social and economic impacts of wealth inequality, specifically focusing on its effects on happiness, as analyzed using micro survey data from the China Family Panel Studies (CFPS). This article employs the panel OLS regression method with time and province fixed effects for the main result and heterogeneity analysis, then uses the mediating effect and moderating effect test for the mechanisms. The article presents several key findings: 1. Impact of Wealth Inequality on Happiness. The study confirms that wealth inequality significantly reduces happiness, a conclusion reinforced by a range of consistency tests and endogeneity checks. 2. Heterogeneity Analysis. Three areas of heterogeneity are examined: Hukou status, education level, and family members' average income. The results indicate that the happiness of families with a family head holding an urban Hukou, higher education, or a higher per-member income level is less affected by wealth inequality. 3. Mechanisms Affecting Happiness. At the micro-level, the article identifies two mediating pathways-health and marital status-through which wealth inequality negatively influences happiness. At the macro-level, it is found that social security expenditure and economic development can moderate these effects and enhance subjective happiness under the same conditions of wealth inequality. The contributions of this study are specific as: 1. This study addresses some of the existing gaps in the research regarding the relationship between wealth inequality and happiness. 2. The article utilizes relative deprivation as a measure of wealth inequality, considered a more apt metric for studying happiness compared to absolute inequality. 3. This research offers insights into the mechanisms behind the observed effects, considering both micro-level (individual and family) and macro-level (societal and economic) factors.

Estimation of Life Insurance Asset Value From Household Survey

The omission of the asset value of life insurance policies in computing household assets would underestimate household wealth and therefore bias measures of wealth inequality. We propose a method to estimate the cash value of household life insurance assets by combining the Lee-Carter model, which forecasts mortality risk, and the concept of the net level premium reserve in actuarial science. This method is readily applicable using household survey data.

How Do Inheritances Shape Wealth Inequality? Theory and Evidence from Sweden

Abstract This article aims to measure and understand the role of inheritances in shaping wealth inequality. We use a quasi-experimental design and Swedish administrative data to document that the average heir depletes her inheritance within a decade while the inheritances of wealthy heirs remain intact. These different depletion rates are not due to different consumption or labour supply responses but due to different rates of return on inherited wealth. Upon their receipt, inheritances reduce relative measures of wealth inequality, such as top shares or percentile ratios. Theoretically, this reduction in inequality could be due to either a compressed inheritance distribution or similar chances of having wealthy parents (high intergenerational mobility). Empirically, the first force is more significant in Sweden. Within a decade, however, the effect is reversed: inheritances increase wealth inequality since the different depletion rates widen the inequality in inherited wealth over time. This implies that inheritance taxation can reduce long run wealth inequality only through the taxation of wealthy heirs.

Wealth inequality and social mobility: A simulation-based modelling approach

We design a series of simulation-based thought experiments to deductively evaluate the causal effects of various factors on wealth inequality (the distribution) and social mobility (dynamics of the distribution). We find that uncertainty per se can lead to a “natural” degree of inequality and returns-related factors contribute more than earnings-related factors. Based on these identified factors, we construct an empirical, hybrid agent-based model to match the observed wealth inequality measures of the G7 countries and China. The estimated model can generate a power-law wealth distribution for the rich and a positively sloped intra-generational Great Gatsby curve. We also demonstrate how this hybrid model can be extended to a wide range of questions such as redistributive effects of tax and finance.

Wealth concentration in the USA using an expanded measure of net worth

Abstract Defined benefit (DB) pensions and Social Security are important resources for financing retirement in the USA. However, these illiquid, nonmarket forms of wealth are typically excluded from measures of net worth. To the extent that these broadly held resources substitute for savings, measures of wealth inequality that do not account for DB pensions and Social Security may be overstated. This article develops an alternative, expanded wealth concept, augmenting net worth data from the Survey of Consumer Finances with estimates of DB pension and expected Social Security wealth. We explore the concentration of wealth among households ages 40–59 and find that (i) including DB pension and Social Security results in markedly lower measures of wealth concentration and (ii) trends toward higher wealth inequality over time, while moderated, are still present. Simulation exercises show that reductions in Social Security benefits significantly increase wealth concentration for the youngest birth-year cohorts.

Natural resources and wealth inequality: a cross-country analysis

PurposeThis study investigates the impact of natural resources on wealth inequality as a first attempt on a panel of 45 developed and developing countries.Design/methodology/approachUsing the generalized method of moments (GMM), the results provide strong evidence that natural resources increase wealth inequality within a linear empirical framework.FindingsThese results are robust to the use of alternative natural resources and wealth inequality measures. Additionally, a nonlinear analysis provides evidence of an inverted U shaped relationship between natural resources and wealth inequality. The net effect of enhancing natural resources on wealth inequality is positive and building on the corresponding conditional negative effect, the attendant natural resource thresholds for inclusive development are provided. It follows that while natural resources increase wealth inequality, some critical levels of natural resources are needed for natural resources to reduce wealth inequality.Originality/valueTo the best of knowledge, this is the first study to assess how enhancing natural resources affect wealth inequality.

The Association between Wealth Inequality and Socioeconomic Outcomes

We investigate whether inequality in wealth distribution is broadly associated with adverse socioeconomic outcomes across countries. There are few studies that investigate these relationships, likely due to data limitations. On the other hand, a substantial body of work suggests that income inequality correlates with undesirable outcomes. This paper evaluates the relationship between measures of wealth inequality and a number of outcomes across countries in a unified estimation framework that circumvents publication bias. While we fail to find support for a broad negative association, we do find a negative correlation between wealth inequality and institutional quality.

How Do Inheritances Shape Wealth Inequality? Theory and Evidence from Sweden

A recent literature has found that inheritances reduce relative measures of wealth inequality. Theoretically, we show that this surprising finding stems from high intergenerational wealth mobility or low inheritance inequality. Empirically, we show that this finding is only true in the short run using Swedish administrative data and exploiting randomness in the timing of death. The inheritance effect on wealth inequality is reversed within a decade due to less wealthy heirs depleting their inherited wealth in contrast to more affluent heirs. Investigating mechanisms behind this depletion, we find that inheritances generate a roughly constant increase in annual non-labor income. 60% of this increase is allocated to consumption of goods (half of which consists of car consumption) in the first years, compared to 80% in later years. The remaining labor supply responses reflect a considerable albeit declining inheritance labor-supply elasticity. In a second quasi-experimental design, we demonstrate that large windfall inheritances due to a inheritance tax repeal were sustained over time. Our findings suggest that inheritance taxation increases short-run wealth inequality but reduces it in the long run solely through taxation of very large inheritances.

Monetary policy and wealth inequality over the great recession in the UK. An empirical analysis

Abstract We use detailed micro information at household level from the Wealth and Assets Survey to construct measures of wealth inequality from 2006 to 2018 at the monthly frequency. We investigate the dynamic relationship between monetary policy and the evolution of wealth inequality measures. Our findings suggest that expansionary monetary policy shocks lead to an increase in wealth inequality and contributed significantly to its fluctuations. This effect is heterogenous across the wealth distribution with the monetary shock affecting the median household relative to the 10th and 20th percentile by a larger amount than the right tail. Our results suggest that the shock is transmitted through changes in net property and financial wealth.

A commentary on "The trouble with trust: Time-series analysis of social capital, income inequality, and COVID-19 deaths in 84 countries".

This study investigates associations between central aspects of social capital (social trust, group affiliations, civic engagement, confidence in state institutions), income inequality (Gini index for income), and COVID-19 mortality in 84 countries included in different time waves of the World Values Survey (WVS) (Elgar et al., 2020). Comments: First, infectious diseases are either patterned according to socioeconomic status (SES), determined by e.g. habitus, nutrition and crowded housing or clustering, or not according to SES. Second, the focus on economic inequality measured as income inequality (Gini index) should be complemented with measures of wealth inequality (Gini index for wealth), following the globalization process with tax exempted multinational companies. Third, the aspects of social capital were measured in different time waves of the World Values Survey (WVS) for different countries, which is a weakness because trust and other aspects of social capital vary over time and depend on specific events and social and economic trends.

Social Security and Trends in Inequality

Recent influential work finds large increases in inequality in the U.S. based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. We find that top wealth shares have not increased in the last three decades when Social Security is properly accounted for. This finding is robust to assumptions about how taxes and benefits may change in response to system financing concerns. When discounted at the risk-free rate, real Social Security wealth increased substantially from $4.9 trillion in 1989 to $52.6 trillion in 2019. When we adjust the discount rate for long-run macroeconomic risk, this increase remains sizable, growing from over $4.0 trillion in 1989 to $41.2 trillion in 2019. Consequently, by 2019, Social Security wealth represents 59% of the wealth of the bottom 90% of the wealth distribution.

Inequalities and the individualization of wealth

We document the individualization of wealth in France between 1998 and 2015, using precise survey data on the property titles of assets. It is characterized by an increase in the share of wealth which is individualized by spouses (vs. jointly owned) and by an increase in the share of wealth held by singles. We show that the usual measures of wealth inequality, which allocate the same share of household wealth to each spouse or partner, overestimate the share of wealth held by women. This results in an underestimation of both the level and the growth of a) wealth inequality between individuals and b) the gender wealth gap. We argue for better consideration of the ownership status and intra-household distribution of wealth in the measurement of wealth inequality.

Inequality in Egypt: Age-adjusted Gini coefficient

Egypt’s current ‘youth bulge’ constitutes the majority of its population, which implies that growth in the working-age population is faster than the overall population growth rate. With a fast-growing young population in Egypt, it is important to understand whether this demographic composition has an impact on the current inequality measures, since an individual’s stage in life deems detrimental for understanding his or her wealth holdings. In this light, this paper departs from the basic life-cycle impact on wealth inequality measures, and alternatively proposes an empirical method to adjust for age-effects in cross-sectional inequality for Egypt. The resulting Age-adjusted Gini coefficient (AG), eliminates wealth inequality that is attributed to age, yet it perpetuates inequality arising from other wealth-generating factors. By using wealth equalising measures, results of the Age-adjusted Gini coefficient show that age and household characteristics have no impact on wealth accumulation in Egypt, however, wealth is greatly influenced by increasing levels of education, making way for possible movement up the mobility scale.

Is the Relationship of Wealth Inequality with the Real, Financial and Housing Cycle Country-Specific?

Relying on the methodology of deviation cycle dynamics, we analyze whether the association of wealth inequality measures and the real, financial and housing cycle are nationally idiosyncratic. Making use of recently available long time series for France, the United Kingdom (U.K.) and the United States (U.S.), we establish evidence in support of stock market returns co-moving with wealth concentration. However, this holds only for time series of the two studied Anglo-Saxon economies. The top one percent wealth share dynamics evolve procyclically across the housing, real and financial cycle dimension for the U.S. only. Cyclical growth of the French national product coincides with a falling wealth share of top and bottom percentiles and an increasing share of the middle class. No corresponding relationship was found for the U.S. and the U.K. Vector autoregressions (VAR) with single-shock identification confirm our frequency domain results. In the VAR(X) estimates, controlling for the subprime mortgage crisis statistically matters for the wealth concentration response to shocks in housing and stock prices and gross domestic product for the U.S. A control for the European sovereign debt crisis in the case of France is statistically insignificant.

Comparing ancient inequalities: the challenges of comparability, bias and precision

Abstract

The tail that wags: differences in effective right tail coverage and estimates of wealth inequality

This paper focuses on the sensitivity of survey-based estimates of wealth inequality to the quality of the measurement of the upper tail of the distribution. Using data from the 2013 Survey of Consumer Finances (SCF), it develops a series of illustrative examples to highlight some of the problems in making comparisons of wealth inequality measures when there are specific defects in the measurement of the upper tail of the distribution. The results presented strongly indicate that in the absence of effective controls on the measurement of the upper tail of the wealth distribution, great caution should be the rule in the interpretation of most commonly used measures of wealth inequality from a given survey, comparison of such measures across the waves of the survey, and perhaps even more strongly, comparison across independently designed and managed surveys. A graphical decomposition of the 2013 SCF wealth distribution provides additional insight into the underlying cause of the sensitivity of the inequality measures. The paper concludes with a brief outline of a research program for improving the ability of surveys to provide more meaningful estimates of inequality measures.

Wealth inequality, governance and economic growth

Links between economic growth and inequality are of growing interest for researchers and policy makers. Previous studies of this relationship have focused mainly on inequalities in income rather than in wealth. Yet from many perspectives wealth inequality is arguably more important. Using a new panel data set from Credit Suisse for 45 sample countries over the period 2000–2012, this study investigates the effects of wealth inequality on economic growth. Empirical results from system GMM estimation suggest that the wealth inequality is negatively associated with cross-country economic growth. This result is robust to alternative estimators and measures of wealth inequality, as well as the econometric specification. Further empirical investigation reveals that impact of wealth inequality on growth is mitigated by better governance.

Growth volatility and inequality in the U.S.: A wavelet analysis

This study applies wavelet coherency analysis to explore the relationship between the U.S. economic growth volatility, and income and wealth inequality measures over the period 1917 to 2015 and 1962 to 2014. We consider the relationship between output volatility during positive and negative growth scenarios. Wavelet analysis simultaneously examines the correlation and causality between two series in both the time and frequency domains. Our findings provide evidence of positive correlation between the volatility and inequality across high (short-run)- and low-frequencies (long-run). The direction of causality varies across frequencies and time. Strong evidence exists that volatilities lead inequality at low-frequencies across income inequality measures from 1917 to 1997. After 1997, however, the direction of causality changes. In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two series. These findings provide a more thorough picture of the relationship between the U.S. growth volatility and inequality measures over time and frequency domains, suggesting important implications for policy makers.

On income and wealth inequality in Turkey

In this paper, we study Turkey's income and wealth distribution using a model-based approach via a modified Aiyagari (1994) model. In doing so, we use recent parameter estimates for Turkey and calibrate our model to match Turkey's income and wealth inequality measures. We document that our calibrated model matches Turkey's empirical economic inequality metrics with high precision, therefore can be used to infer Turkey's wealth distribution, which lacks data and detailed analysis. We compare Turkey's inequality measures with other countries, and display that by any conventional metric, Turkey qualifies as one of the more unequal economies. Finally, we quantify the welfare cost of inequality, and report that in order not to switch to the unequal Turkish economy, a utilitarian benevolent planner of Turkey's counter-factual representative-agent economy would be indifferent to forgoing 25.15% of steady-state consumption along with working an extra 33.61% of steady-state hours indefinitely.