Negative Wealth Research Articles

The Economics of Financial Stress

Abstract We study the psychological costs of financial constraints and their economic consequences. Using a representative survey of U.S. households, we document the prevalence of financial stress in U.S. households and a strong relationship between financial stress and measures of financial constraints. We incorporate financial stress into an otherwise standard dynamic model of consumption and labor supply. We emphasize two key results. First, both financial stress itself and naivete about financial stress are important components of a psychology-based theory of the poverty trap. Sophisticated households, instead, save extra to escape high-stress states because they understand that doing so alleviates the economic consequences of financial stress. Second, the financial stress channel dampens or reverses the counterfactual large negative wealth effect on labor earnings because relieving stress frees up cognitive resources for productive work. Financial stress also has macroeconomic implications for wealth inequality and fiscal multipliers.

Negative wealth shocks and subsequent depressive symptoms and trajectories in middle-aged and older adults in the USA, England, China, and Mexico: a population-based, multinational, and longitudinal study.

The association between negative wealth shocks and depression among middle-aged and older individuals remains unclear. Our study aimed to assess the association between negative wealth shocks and depression and its trajectories, and to explore cross-national differences in these associations. Our sample included 21 999 participants, of which 9519 were from the Health and Retirement Study (2012-2020), 4936 from the English Longitudinal Study of Ageing (2012-2020), 2520 from the China Health and Retirement Longitudinal Study (2011-2020), and 5024 from the Mexican Health and Aging Study (2012-2021). We used latent class trajectory models to identify depressive trajectories, alongside mixed-model logistic regression and multinomial logistic regression to evaluate associations. In the USA (OR 1.73, 95% CI 1.40-2.16), England (OR 1.71, 95% CI 1.09-2.70), and China (OR 1.38, 95% CI 1.09-1.75), negative wealth shocks were associated with subsequent depressive symptoms, but not in Mexico (OR 1.06, 95% CI 0.86-1.29). Additionally, negative wealth shocks were associated with several depressive trajectories in the USA and China. This association occurred only in increasing-decreasing trajectory in England, while no significant association was found across any trajectory in Mexico. Negative wealth shocks were associated with subsequent depressive symptoms, with significant associations observed in some specific depressive trajectories. These associations exhibited cross-national differences, underscoring the importance of considering country-specific contexts when addressing the mental health impacts of wealth shocks.

Fertility responses to short-term economic stress: Price volatility and wealth shocks in a pre-transitional settler colony

This paper examines the effects of short-term economic stress, captured by general price volatility and a negative wealth shock on short-run fertility behavior in the rural pre-transitional society of the Cape Colony. First, we link complete birth histories of settler women from the South African Families database to consumer price index data to examine the effect of price volatility on conceptions. Next, we link the same birth histories to slave owner and slave emancipation data to examine the effect of a negative wealth shock on conception. Upon slave emancipation in 1834, former slave owners received on average only between 40 and 50 % of the market value of their slaves as compensation, resulting in a substantial reduction in their wealth. Relying on event history models that look simultaneously at stopping and spacing, we do not find strong evidence in support of fertility control in response to general price volatility. We do find greater variance in birth interval lengths for former slaveholding households during and immediately after emancipation, suggesting that a negative wealth shock is associated with increased fertility limitation through postponement in this context.

Negative Wealth Shock and Cognitive Decline and Dementia in Middle-Aged and Older US Adults

As a financial hardship, negative wealth shock has been implicated in some adverse health outcomes. However, associations between negative wealth shock and cognitive decline and dementia have not been examined. To investigate whether negative wealth shock was associated with cognitive decline and incident dementia among middle-aged and older US adults. The Health and Retirement Study (HRS) is a prospective cohort study conducted biennially among US adults older than 50 years. Data from the HRS from calendar years 1996 to 2020 were analyzed from July 1 to 31, 2023. The final sample included 8082 participants with complete data of interest. Wealth status was quantified with questionnaires. Negative wealth shock was defined as a loss of 75% or more in total wealth over a 2-year period. Asset poverty was defined as zero or less total net wealth. Cognitive function was assessed with the modified Telephone Interview for Cognitive Status (TICS-m). Dementia status was determined with TICS-m scores and proxy assessment. Among 8082 participants included (mean [SD] age, 63.7 [5.7] years; 4179 women [51.7%] and 3903 men [48.3%]; 1111 Black [13.7%], 6689 White [82.7%], and 282 other [3.5%]), 1441 developed incident dementia over a median follow-up time of 14 (IQR, 7-20) years. Compared with participants who had positive wealth without shock, those with negative wealth shock had accelerated cognitive decline (β coefficient, -0.014 [95% CI, -0.027 to -0.001]; P = .03) and increased risks of dementia (hazard ratio [HR], 1.27 [95% CI, 1.11-1.46]; P < .001). Higher dementia risks were also found in participants with asset poverty at baseline (HR, 1.61 [95% CI, 1.30-2.00]; P < .001). Associations were found in White participants (HR, 1.34 [95% CI, 1.14-1.58]; P < .001) and participants younger than 65 years (HR, 1.38 [95% CI, 1.13-1.68]; P = .001) but not in other races and ethnicities or those 65 years or older. In this cohort study, negative wealth shock was associated with accelerated cognitive decline and elevated risks of dementia among middle-aged and older US adults, with modifications by age and ethnicity. These findings should be confirmed by further prospective and interventional studies.

On the decline in the magnitude of the expenditure multiplier

AbstractWe investigate the causes underlying the decline in the government expenditure multiplier after the Korean War, through the lens of a structural dynamic stochastic general equilibrium model. We estimate the model using Bayesian methods and annual frequency data from 1939 to 2017. The model replicates the observed fall in the expenditure multiplier. We find that the decline is accounted for by changes in two of the model’s structural parameters, namely a decline in consumption habit persistence and a higher autocorrelation of the public expenditure processes. These changes imply a stronger negative wealth effect, a lower discretion of US fiscal policy and, consequently, a multiplier of smaller magnitude. The model identifies the news shocks to military spending, yet fiscal news plays little role in the decline of the multiplier. Rather, the news shocks account for an important fraction of medium-term variances of debt and military expenditures, which justifies their inclusion in the model.

The impact of wealth loss on household economic well-being in China—the case of over-quota birth fines

ABSTRACT This paper investigates the impact of wealth loss induced by over-quota birth fines on household economic well-being in China. We find that household labour supply adjusts to fertility fines primarily via the extensive margin of maternal labour supply, which is followed by higher savings rates and more remittances sent home. Fertility fines have no effects on non-food consumption; however, they significantly decrease food consumption. We propose two instrumental variables and placebo tests as identification strategies, all of which yield consistent results. Our study deepens the understanding of how households respond to over-quota birth fines and sheds light on responses to negative wealth shocks.

Explaining the poor-rich gap in anthropometric failure among children in India: An econometric analysis of the NFHS, 2021 and 2016

Wealth inequality in anthropometric failure is a persistent concern for policymakers in India. This necessitates a comprehensive analysis and identification of various risk factors that can explain the poor-rich gap in anthropometric failure among children in India. We analyze the fifth and fourth rounds of the Indian National Family Health Survey collected from June 2019 to April 2021 and January 2015 to December 2016, respectively. Two samples of children aged 0–59 and 6–23 months old with singleton birth, alive at the time of the survey with non-pregnant mothers, and with valid data on stunting, severe stunting, underweight, severely underweight, wasting, and severe wasting are included in the analytical samples from both rounds. We estimate the wealth gradients and distribution of wealth among children with anthropometric failure. Wealth gap in anthropometric failure is identified using logistic regression analysis. The contribution of risk factors in explaining the poor-rich gap in AF is estimated by the multivariate decomposition analysis. We observe a negative wealth gradient for each measure of anthropometric failure. Wealth distributions indicate that at least 60% of the population burden of anthropometric failure is among the poor and poorest wealth groups. Even among children with similar modifiable risk factors, children from poor and poorest backgrounds have a higher prevalence of anthropometric failure compared to children from the richest backgrounds. Maternal BMI, exposure to mass media, and access to sanitary facility are the most significant risk factors that explain the poor-rich gap in anthropometric failure. This evidence suggests that the burden of anthropometric failure and its risk factors are unevenly distributed in India. The policy interventions focusing on maternal and child health, implemented with a targeted approach prioritizing the vulnerable groups, can only partially bridge the poor-rich gap in anthropometric failure. The role of anti-poverty programs and growth is essential to narrow this gap in anthropometric failure.

Negative wealth shocks in later life and subsequent cognitive function in older adults in China, England, Mexico, and the USA, 2012–18: a population-based, cross-nationally harmonised, longitudinal study

Household wealth is positively related to cognitive health outcomes in later life. However, the association between negative wealth shocks and cognitive function in later life, and whether this association might differ across countries at different levels of economic development, is unclear. We aimed to investigate whether negative wealth shocks in later life are associated with cognitive function in older adults in China, England, Mexico, and the USA, and whether this association is modified by country income level. For this population-based, cross-nationally harmonised, longitudinal study, data were analysed from core interviews of the population-based US Health and Retirement Study (2012 and 2016) and its partner studies in China (the China Health and Retirement Longitudinal Study; 2015 and 2018), England (the English Longitudinal Study of Ageing; 2012 and 2016), and Mexico (Mexican Health and Aging Study; 2012 and 2015-16), and their respective Harmonized Cognitive Assessment Protocols (HCAPs). Negative wealth shocks over the follow-up periods of the respective cohorts were defined in two ways: an extreme loss of 75% or greater from the baseline amount of wealth, and a decline in within-population wealth quintile rank. The primary outcome was the harmonised general cognitive function (GCF) factor score, which was constructed with factor analysis on the HCAP neuropsychological assessments of memory, orientation, attention, executive function, and verbal fluency performance (mean 0; SD 1). We used sampling-weighted, multivariable-adjusted linear models to examine associations. Data from 9465 participants were included in this analysis: 3796 from China, 1184 from England, 1193 from Mexico, and 3292 from the USA. The mean baseline age of participants was 68·5 (SD 5·4) years in China (49·8% women), 72·0 (7·0) years in England (54·6% women), 70·6 (6·8) years in Mexico (55·1% women), and 72·7 (7·5) years in the USA (60·4% women). A wealth loss of 75% or greater was negatively associated with subsequent cognitive function in the USA (β -0·16 SD units; 95% CI -0·29 to -0·04) and China (-0·14; -0·21 to -0·07), but not in England (-0·01; -0·24 to 0·22) or Mexico (-0·11; -0·24 to 0·03). Similarly, within-population wealth quintile rank declines were negatively associated with subsequent cognitive function in the USA (β -0·07 per quintile rank decline; 95% CI -0·11 to -0·03) and China (β -0·07; -0·09 to -0·04), but not in England (-0·05; -0·11 to 0·01) or Mexico (-0·03; -0·07 to 0·01). The impact of wealth shocks in later life on subsequent lower level of cognitive function of older adults in China, England, Mexico, and the USA differed across macro-level socioeconomic structures. These findings suggest that government policies and social safety nets in countries with different levels of economic development might have a role in protecting older adults from adverse health effects of wealth losses in later life. US National Institute on Aging, US National Institutes of Health.

The Economic Context of Higher Education Expansion: Race, Gender, and Household Finances Across Cohorts and Generations

This article assesses how the economic context of higher education expansion since the mid-20th century has shaped families’ financial lives—in terms of income and wealth/debt—as well as how these trends have differed for Black and White women and men. We use data from the NLSY-79 (comprising trailing-edge Baby Boomers) and NLSY-97 (comprising early Millennials) to show how academically similar students in these two cohorts fared in terms of educational attainment, household income, household wealth, and total student debt accrued by age 35. While we discuss findings across race-gender groups, our results call attention to the education-related economic disadvantages faced by Black women that have accelerated across cohorts. Over time, Black women’s educational attainment has increased substantially, and high-achieving Black women, in particular, have become uniquely likely to progress beyond the BA. But while high-achieving Black women have made many advances in higher education, they also have become more likely than similarly high-achieving White men, White women, and Black men to have zero or negative wealth at the household level, and to accrue student debt for themselves and for their children. Our findings demonstrate that the costs of expanded access to credit for higher education have not been borne equally across race, gender, and achievement, and that these patterns have multigenerational financial consequences for college attendees and their families.

Do Robots Increase Wealth Dispersion?

Abstract We document significant negative effects of exposure to increased automation at work on household wealth accumulation. Beyond the income and savings channels, we uncover a novel mechanism contributing to the negative wealth effects of automation that arises through the endogenous optimal portfolio decisions of households. We show that households rebalance their financial wealth away from the stock market in response to increased human capital risk induced by pervasive automation, thereby attaining lower wealth levels and relative positions in the wealth distribution. Our evidence suggests that the portfolio channel amplifies the inequality-enhancing effects of increased automation. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Wealth taxation in the Austrian Press from 2005 to 2020: a critical political economy analysis

Abstract This study focuses on the Austrian media coverage of wealth taxes by conducting a content analysis of all commentary pieces published in 2005–2020 by five Austrian daily newspapers. We find (i) that the majority of commentaries take a negative position towards wealth taxation, (ii) that journalists write more negative comments than guest authors do and (iii) 50 argumentative patterns in five main categories. In light of these findings, we discuss several potential drivers of the predominantly negative wealth taxation coverage: the high degree of ownership concentration by wealthy families and institutions in the Austrian newspaper market, the importance of advertising to fund newspapers and the influence of elite institutions as providers of information. Finally, we embed our findings in recent literature and illustrate similarities and differences of the German and Austrian media coverage of wealth taxation.

Household Wealth Distribution and Its Impact in China: Evidence from the China Family Panel Studies

As China has experienced rapid economic growth, the study of household wealth distribution has become a pressing issue. This paper uses data from the 2012–2018 China Family Panel Studies (CFPS) to examine the impact of demographic factors and urban–rural differences on household wealth distribution. The study finds that China’s household wealth Gini coefficient has increased significantly, with wealthier households accumulating wealth at a much faster rate than those at the bottom. In addition, negative wealth households, hand-to-mouth households, and indebted households have all shown an upward trend. Despite small marginal effects, demographic factors such as education, average household age, elderly numbers, and household size do not significantly affect the overall trend of the wealth distribution. Both rural and urban households at the top maintain high growth rates, but the average urban household experiences faster wealth growth than its rural counterpart. Asset allocation between rural and urban households also shows significant differences. This analysis underscores the importance of examining wealth distribution to promote equitable resource allocation and economic stability. Policymakers can use the findings of this study to reduce economic disparities and achieve the goal of common prosperity in China.

The scars of supply shocks: Implications for monetary policy

We study the effects of supply disruptions - for instance due to energy price shocks or the emergence of a pandemic - in an economy with Keynesian unemployment and endogenous productivity growth. By temporarily disrupting investment, negative supply shocks generate permanent output losses - or scarring effects. By inducing a negative wealth effect, scarring effects depress aggregate demand, which may even fall below the exogenous fall in supply. However, that scarring effects depress aggregate demand does not necessarily translate into low rates of inflation. On the contrary, scarring effects may reinforce and prolong the inflationary impact of supply disruptions. A contractionary monetary policy response may end up deepening scarring effects and increasing inflation in the medium run. A successful disinflation may require a policy mix of monetary tightening and fiscal interventions aiming at supporting business investment and the economy’s productive capacity.

The redistributive effects of monetary policy in an overlapping generations model

I study the redistributive effects of monetary policy with attention to a wealth effect for savers generated by a cut in interest rates. To this end, I build a full-fledged overlapping generations New Keynesian model (OLGNK) that features marginal propensity to consume (MPC) heterogeneity, financial frictions, and precautionary saving behavior. The model is calibrated to match the U.S. demographic structure and yields empirically realistic MPCs and inequality among households. I find that a negative wealth effect resulting from an interest rate cut for savers is substantial, which dampens the impulse responses of aggregate output relative to those in a representative agent New Keynesian (RANK) model. This finding is in contrast to a heterogeneous agent New Keynesian (HANK) model, in which there is amplification of monetary policy relative to RANK.

This site is closed! The effect of decommissioning mining waste facilities on mortality in the long run

Mining is typically linked to industrial development. However, waste generated by mineral extraction is a major source of environmental deterioration. This poses a trade-off between preserving the environment and fostering growth. We assess the long-run consequences of reduced exposure to mining waste on health by exploiting municipality-level variation in the staggered closure of facilities that treat and store mining waste in Italy over the course of five decades. We find that shutting down waste facilities decreases decadal mortality by 126 deaths per 100,000 inhabitants (i.e., by nearly 15%), while also improving the literacy and employment rates of the resident population. Our results point to positive health effects dominating potentially negative wealth effects.

Changes in the DJIA: market reactions and economic cycles

PurposeThe purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary periods, explain the difference in findings.Design/methodology/approachThe authors examine changes in the Dow Jones Industrial Average (DJIA) from 1929 to 2019 to evaluate immediate and long-term market reactions after a component change. Using multiple event-study methodologies, the authors examine the full era, the pre- and post-exchange traded fund (ETF) windows and economic cycles using both pre and post-estimation windows.FindingsIn aggregate, DJIA additions do not present an increase in wealth; however, wealth effects are positive during expansions and negative during recessions. Deletions have a negative wealth effect. The authors find weak evidence of an indexing effect. Additions are positive post-1998, and deletions remain negative regardless of era. In the long run, firms added to the DJIA have positive abnormal returns in the second year after inclusion. Deletions in recessionary times have negative returns three years after removal, a signal of longer-term wealth decline for these firms.Research limitations/implicationsThe DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.Practical implicationsThe DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.Originality/valuePrior literature presents limited time series of data points and mixed results and implications. The authors find that the economic cycle is a driving factor that supports predicted signs and amounts of wealth change. Furthermore, the authors see limited ETF impact on DJIA changes and some impact of the choice of estimation period.

Through Aristotelian Lenses, Potential Reforms of the Leveraged Buyout Model

The overall objectives of this article are to help the reader see and understand through Aristotelian lenses: (1) positive and negative aspects of the Leveraged Buyout (LBO) business model; and, (2) how LBO practices can be reformed so as to retain positives and reduce negatives. Aristotelian lenses considered are: wealth acquisition through wealth expansion, wealth creation, and wealth transfers; distributive and corrective justice; and, a dialectic analytic process of retaining positives, reducing negatives, and reforming. Key net positive wealth expansion aspects of the model are discussed with respect to: profitability for the owners, managers, and investors of LBO firms; potential productivity improvements on the cost and revenue sides; and, potentially greater credit availability. Negative wealth transfer and destruction aspects with respect to: a relatively high rate of bankruptcies in some countries and in economic downturns; LBO firm gains without responsibility for losses; wealth transfers from employees, creditors, ordinary vs “carried interest” taxpayers; and, damaged wealth expansion and creation capabilities of acquired organizations are discussed. Potential reforms that could reduce negatives, retain positives, and reform the model are discussed.

PERCEIVED FINANCIAL VULNERABILITY, WEALTH, AND WEALTH CHANGE: THE HEALTH AND RETIREMENT STUDY

Abstract Financial vulnerability among older adults is an escalating social concern given all too frequent financial exploitation of this population. The 6-item Perceived Financial Vulnerability (PFV) was derived from the 56-item Lichtenberg Financial Decision Rating Scale to examine awareness and psychological vulnerability regarding finances. It was included as an experimental module in the Health and Retirement Study (HRS) in 2018. Prior findings have identified significant associations of PFV with wealth, demographics, and health status. The goals of the current study were to examine the relationship between wealth, changes in wealth, and perceived financial vulnerability. The sample included 1156 respondents to the HRS. Respondents were 57.5% female and 77.2% Caucasian. Average age was 68.28 (SD = 10.74) and average years of education was 13.11 (SD = 2.88). The PFV demonstrated adequate internal consistency (α = .60). Total assets at baseline (2016) and change in total assets over two waves (2016 to 2018) were independently stratified into deciles and used as primary predictors of perceived financial vulnerability in 2018. A multiple linear regression model was conducted to examine these relationships. Consistent with previous findings, demographics (R2=0.04, F(5,1150)=10.07, p &amp;lt; .001) and baseline wealth (B= -0.20, SE=0.02, p &amp;lt; .001) predicted PFV scores. Subsequent addition of wealth change (B=-0.06, SE=0.02, p=.002) significantly contributed to overall variance accounted for (p &amp;lt; .01). Negative wealth change over two years and low baseline wealth related to higher PFV. These findings support the construct and the PFV measure as valid and informative.

The freedom to choose: Theory and quasi-experimental evidence on cash transfer restrictions

Should cash transfer programmes restrict consumer choice? For example, should food assistance delivered in cash be restricted to food and exclude temptation goods? Theoretically, restrictions induce (1) a substitution effect away from restricted goods and (2) a negative wealth effect if transfers are extra-marginal and the resale of goods is costly. The welfare impact on transfer recipients is negative. We test these predictions by exploiting a natural experiment in a refugee settlement in Kenya, where some refugees receive monthly cash transfers restricted to food while others receive unrestricted transfers. In line with theory, we find that restricted transfers increase participation in a shadow resale market and negatively affect non-food expenditure, temptation-goods spending, and subjective well-being. Consistent with theory, restrictions have no significant effect on food consumption. Our results show that policy-makers should avoid restrictions to maximise positive impacts on transfer beneficiaries, especially when extreme poverty implies that transfers are extra-marginal.

Crisis stress for the diversity of financial portfolios — evidence from European households

In this paper, we investigate how European households changed the diversity of their financial portfolios in response to the Great Financial and the subsequent European Debt Crisis. For this purpose we apply a Difference-in-Differences (DiD) approach estimated as a correlated random effects (CRE) model to six waves of the Survey of Health, Ageing and Retirement in Europe (SHARE). We find that households holding risky assets responded to the twin European financial crises with lower levels of diversity in their financial portfolios. We also reveal their flight to liquid and safe bank accounts at the expense of mutual funds and stocks. The downward trend peaked in 2015. Only after 2015, when the Eurozone debt crisis was definitely over, those households’ financial portfolios became more diverse again. The findings are highly robust across gender, income, and wealth quartiles, as well as across most countries. Such behavior is most likely a mistake with negative wealth consequences for the households and for the society. Programs to increase portfolio diversity literacy could support households in avoiding such behavior in the next crisis.