Changes In Wealth Research Articles

The Housing Haves and Have-Nots

The rise in house prices since the turn of the millennium seems likely to have increased the inequality of wealth in New Zealand. On average, house-owners were wealthier than others before the boom, and during the boom real house prices more than doubled. Yet the available data shows little evidence of an increase in inequality in wealth or even of a growing proportional disparity between the net wealth of property owners and others. Difficulties in accurately measuring these changes in wealth are reviewed.

INVESTOR RESPONSE TO FOOD NUTRITION LABELING REGULATION IN CHINA

INVESTOR RESPONSE TO FOOD NUTRITION LABELING REGULATION IN CHINA

Access to long term care after a wealth shock: Evidence from the housing bubble and burst

Abstract Home equity is the primary self-funding mechanism for long term services and supports (LTSS). Using data from the relevant waves of the Health and Retirement Study, we exploit the exogenous variation resulting from the value of housing assets during the Great Recession to examine the effect of housing wealth on use of home health, unpaid help and nursing home care by older adults. Consistent with the idea that individuals consume part of their housing equity during an emergency, we find evidence of a significant increase in the use of paid home health care, nursing home and unpaid informal care. The intensity of unpaid care, however, was not affected. We conduct a placebo test on individuals who do not own property; their use of LTSS was not affected by the housing wealth changes. Taken together, the findings suggest that a housing wealth shock exerts a positive and significant effect on the uptake of home health and nursing home entry and some effect on the probability of unpaid care, but no significant effect on the intensity of unpaid care.

Portfolio Composition and Valuation Effects in Emerging Market Economies

ABSTRACTThe increase in cross-border assets and liabilities of nations with globalization, implies small asset price and currency movements create large wealth changes. The national net external position is increasingly driven by valuation effects, which the current account does not capture. We analyze valuation effects for a group of seven emerging economies, namely Brazil, Colombia, India, Republic of Korea, Mexico, Peru and Turkey for the time period 2005:Q1-2015:Q4 by scrutinizing their external asset portfolio while controlling for country fundamentals. Both asset and liability categories of Direct Investment equity are found to positively impact valuation. Equity liabilities and debt assets of Portfolio Investment positively influence valuation. Debt liabilities of all kinds of investment negatively impact valuation. Countries with stronger currency tend to gain through valuation effects. An appreciated real effective exchange rate is associated with higher valuation gains. We also found non-linear effects of the composition of external debt portfolio by interacting external portfolio and country characteristics. The external portfolio selection of emerging economies (with more in Direct Investment equity liabilities and Portfolio Investment debt assets) in the period has shielded them from global volatility, and enabled valuation gains.

Taxation, non-tax revenue and democracy: New evidence using new cross-country data

A large body of econometric research has generated growing support for the existence of a political resource curse, but has nonetheless continued to be regularly punctuated by research contesting those conclusions. This continuing disagreement can be explained in significant part by problems associated with low-quality government revenue data: it has undermined the robustness of many existing findings, while leading other researchers to rely on alternative measures of resource income as their primary explanatory variable – a highly imperfect measures of the underlying relationship of interest. We re-examine the relationship between taxation, non-tax revenue and democracy by employing dramatically improved data developed specifically for this research. We find the strongest evidence to date of a political resource curse, and provide evidence about the specific details of the underlying relationship: (i) natural resource wealth is anti-democratic, rather than merely stabilizing; (ii) it is driven primarily by changes in the composition of government revenue; (iii) it is best understood as a long-term relationship, rather than short-term changes in resource wealth being quickly translated into major political changes; and (iv) it is driven primarily by oil wealth, rather than mineral wealth, because governments are comparatively effective at translating oil wealth into the government revenues that drive the political resource curse.

Household Wealth & the Net International Investment Position

Aggregate household wealth dynamics are closely associated with fluctuations of the economy. However, the linkages between household wealth dynamics and cross-border financial holdings have remained unexamined. Thanks to the recent assembly of an essential dataset, this paper assesses these co-movements in selected advanced economies. We establish that increases in net household wealth are associated with deteriorations of the Net International Investment Position (NIIP). This pattern is primarily driven by valuation changes in wealth (mostly through house price appreciation). Overall, we find that capital gains on household wealth are strongly related to the accumulation of net external debt liabilities, a key indicator of financial vulnerability.

Институционально-экономический контекст формирования нефинансового богатства российских домохозяйств: от приватизации к приобретению

Татьяна Юрьевна Богомолова – кандидат социологических наук, заведующий, Отдел социальных проблем, Институт экономики и организации промышленного производства СО РАН; доцент, кафедра общей социологии, Новосибирский национальный исследовательский государственный университет. Адрес: 630090, Новосибирск, проспект Академика Лаврентьева, д. 17. E-mail: bogtan@rambler.ru
 Татьяна Юрьевна Черкашина – кандидат социологических наук, старший научный сотрудник, Институт экономики и организации промышленного производства СО РАН; заведующий, кафедра общей социологии, Новосибирский национальный исследовательский государственный университет. Адрес: Адрес: 630090, Новосибирск, проспект Академика Лаврентьева, д. 17. E-mail: touch@nsu.ru
 Цитирование: Богомолова Т.Ю., Черкашина Т.Ю. (2018) Институционально-экономический контекст формирования нефинансового богатства российских домохозяйств: от приватизации к приобретению // Мир России. Т. 27. № 2. С. 62–89. DOI: 10.17323/1811-038X-2018-27-2-62-89
 В статье соотнесены институциональные условия и результаты формирования в динамике нефинансового богатства домохозяйств в новейшей истории России. Индикаторами процесса формирования нефинансового богатства домохозяйств выступили обеспеченность ключевыми нефинансовыми активами и профиль стратификации домохозяйств по количеству активов в собственности. В исследовании для описания институционального фона формирования нефинансового богатства населения в 1991–2014 годах использована государственная и ведомственная статистика о приватизации предприятий, жилья, сельскохозяйственной земли, строительстве жилья, производстве и продаже автомобилей. На данных Российского мониторинга экономического положения и здоровья населения НИУ ВШЭ выполнены расчеты, отражающие эволюцию в 1994–2014 годах численности домохозяйств, которые обладают тем или иным нефинансовым активом, а также демонстрирующие концентрацию активов в домохозяйствах. 
 Показано, что к концу 1990-х годов приватизация национального богатства как механизм массового превращения населения в обладателей нефинансового богатства себя исчерпала. Рост доходов населения с середины первой декады 2000-х годов сопровождался развитием потребительского кредитования, государственными программами по увеличению жилищного строительства и производства автомобилей. Эти институциональные стимулы создали для российских домохозяйств не только возможности, но и риски для формирования нефинансового богатства через приобретение собственности. В течение 1994–2014 годов поступательно увеличивалась доля домохозяйств, владеющих жилищными активами и транспортными средствами, в то время как доля собственников земельных участков и производственных активов сокращалась. В рассматриваемый период существенно уменьшилась доля домохозяйств, не обладающих нефинансовыми активами; параллельно наблюдалась тенденция к поляризации: росла относительная численность домохозяйств с одним активом в собственности и домохозяйств, имеющих более трех активов.

Business Cycles in a Three-sector Growth Model with Portfolio Equilibrium between Land, Gold and Capital

This study generalises a growth model proposed by Zhang (2016) through allowing all the time-dependent variables to be time-dependent. Zhang’s model deals with dynamic interdependence between capital accumulation and environmental change, with portfolio equilibrium among land, gold and physical wealth in a multi-sector general equilibrium framework. The model explains the dynamics of prices, rents and distribution of land, gold, physical wealth and environmental change on the basis of micro-economic foundation. This article generalises the model to explain business cycles due to different exogenous shocks. We simulate the motion of the economy and conduct comparative dynamic analysis to demonstrate business cycles due to periodic oscillations in the propensity to use gold, the propensity to consume housing, the propensity to consume industrial goods, the propensity to consume agricultural goods, the propensity to save, and the tax rate on the consumption of industrial goods. JEL Classification: O41, D41, E32

Cognitive Decline and Household Financial Decisions at Older Ages.

Using data from the Health and Retirement Study, we examine the association between cognition and financial outcomes among older American couples. We first investigate the relationship between couple members' cognitive ability and financial responsibility within the household. Our results suggest that differences in the level of cognitive ability play a major role in determining who is the household financial decision-maker, while changes in cognitive ability of both couple members over time only marginally modify such choice. Next, we study changes in financial wealth following pronounced declines in cognitive test scores of household members. We observe significant reductions in wealth among households whose financial decision-maker experiences such declines. Wealth reductions are less sizeable among those with pension/annuity income and receiving help with finances from their children.

Time varying risk aversion

Exploiting portfolio data and repeated surveys of an Italian bank's clients, we test whether investors’ risk aversion increases following the 2008 crisis. We find that, after the crisis, both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock. We investigate four explanations: changes in wealth, expected income, perceived probabilities, and emotion-based changes of the utility function. Our data are inconsistent with the first two channels, while they suggest that fear is a potential mechanism underlying financial decisions, whether by increasing the curvature of the utility function or the salience of negative outcomes.

HANZE: a pan-European database of exposure to natural hazards and damaging historical floods since 1870

Abstract. The influence of social and economic change on the consequences of natural hazards has been a matter of much interest recently. However, there is a lack of comprehensive, high-resolution data on historical changes in land use, population, or assets available to study this topic. Here, we present the Historical Analysis of Natural Hazards in Europe (HANZE) database, which contains two parts: (1) HANZE-Exposure with maps for 37 countries and territories from 1870 to 2020 in 100 m resolution and (2) HANZE-Events, a compilation of past disasters with information on dates, locations, and losses, currently limited to floods only. The database was constructed using high-resolution maps of present land use and population, a large compilation of historical statistics, and relatively simple disaggregation techniques and rule-based land use reallocation schemes. Data encompassed in HANZE allow one to "normalize" information on losses due to natural hazards by taking into account inflation as well as changes in population, production, and wealth. This database of past events currently contains 1564 records (1870–2016) of flash, river, coastal, and compound floods. The HANZE database is freely available at https://data.4tu.nl/repository/collection:HANZE.

Consumption with liquidity constraints: An analytical characterization

How do liquidity constraints affect households? This is a well-researched subject with remarkably few theoretical results. This paper bridges this gap by providing a closed form expression for consumption with liquidity constraints for a wide class of utility functions (HARA). Using this expression, I prove that the consumption function is strictly concave in wealth if a relevant liquidity constraint exists. Moreover, households respond to a tightening of the liquidity constraint by reducing consumption, becoming more sensitive to wealth changes, and having a “more” concave consumption function in wealth. These results thus provide theoretical underpinnings for how contractions in credit supply affect households.

Profiling the elite middle-age Chinese outbound travellers: a 3rd wave?

ABSTRACTWith inductive analysis of relevant statistics and literature, this paper reveals an elite middle-age Chinese cohort of significant size, with ample buying power and considerable discretionary time to support the outbound travel of themselves and their children. This middle age group has experienced a time of dramatic change in recent years causing a transformation of traditional livelihood activities and lifestyles. Associated changes in wealth and values contribute to overseas travel proclivities that could entail both positive and negative impacts for both host and guest. The depiction of the current status and potential development in Chinese outbound travel suggests that this group could possibly form a ‘3rd wave’ of Chinese outbound tourists. The segmentation based on generation cohort and social status is particularly suitable in helping the tourism industry service providers in identifying market characteristics for marketing, product development and comprehensive destination development.

Bias and misrepresentation revisited: Perspective on major equity indices

We analyze the characteristics of 22 leading equity indices and discuss common biases relative to their respective national equity markets. Findings demonstrate systematic risk-factor exposures on a universally consistent basis in form of a large-cap, low beta, growth and contrarian tilt. These systematic biases are also relevant given their knock-on effect on public changes in consumption due to a changes in net wealth, especially as more private investors are utilizing ETFs on the basis of these indices rather than delegated mandates in form of mutual or pension funds.

The Joint Distribution of Wealth and Income Risk: Evidence from Bern

Using detailed tax data from the Swiss canton of Bern, I examine how changes in wealth are related to income risk. I find that only among elderly individuals high kurtosis of income risk may be positively correlated with wealth accumulation. Additionally, I document that a substantial share of taxpayers have negative net wealth. While wealth and income are positively correlated for positive net wealth taxpayers, this correlation is negative for negative net wealth taxpayers. These negative net wealth investors experience sharp increases in wealth and income in subsequent periods. Finally, wealth risk is more dispersed than income risk.

Civil War, Natural Disaster and Risk Preferences: Evidence from Sri Lankan Twins

We estimate whether risk preferences are affected by traumatic events by using a unique survey of Sri Lankan twins which contains information on individual's exposure to the 2004 Indian Ocean Tsunami, participation as a combatant in the civil war, validated measures of mental health and risk preferences, and a rich set of control variables. Our estimation strategy utilises variation in experiences within twin pairs and allows us to explore whether preference changes are driven by wealth shocks and/or changes in mental health. We find that both events lead to less risk aversion, a result that is not driven by mental health or wealth changes.

Countries as Agents in a Global-Scale Computational Model

Our agent-based model examines the ramifications of formal defense agreements between countries. Our model builds on previous work and creates an empirically based version of a tribute model in which actors within existing real-world networks demand tribute from one another. If the threatened actor does not pay the tribute, the aggressing actor will engage in a decision to start a war. Tribute and war payments are based on a measure of the country's wealth. We utilize the Correlates of War dataset to provide us with worldwide historical defense alliance information. Using these networks as our initial conditions, we run the model forward from four prominent historical years and simulate the interactions that take place as well as the changes in overall wealth. Agents in the model employ a cost benefit analysis in their decision of whether or not to go to war. This model provides results that are in qualitative agreement with historical emergent macro outcomes seen over time.

On investor preferences and mutual fund separation

We extend Cass and Stiglitz's analysis of preference-based mutual fund separation. We provide a complete characterization of the general K-fund separation. We show that some instances of separation with many funds can be constructed by adding inverse marginal utility functions having separation with one or a few funds. We also show that there is money separation (in which we can choose the riskless asset as one of the funds) if and only if there is a fund (which may or may not be the riskless asset) with a constant allocation as wealth changes. In general, we do not know how to write the separating utility functions in closed form, but we can do so in the special case of SAHARA utility defined by Chen et al. and for a new class of GOBI preferences introduced here.

The effectiveness of incentives to postpone retirement: evidence from Italy

AbstractThis paper investigates whether financial incentives may be used as an effective device to induce workers to postpone retirement by evaluating the Italian so-called ‘super-bonus’ reform. The bonus consisted of economic incentives given for a limited period to private sector workers who had reached the requirements for seniority pension but who chose to postpone retirement. Using data from the Bank of Italy Survey on Household Income and Wealth, this paper assesses the effect of the bonus on the decision to postpone retirement, by comparing private and public workers before and after the reform. Results suggest a 30% reduction in seniority retirement probability, despite the fact that, when changes in social security wealth are taken into account, the bonus actually provided a negative incentive for most workers. Results also suggest that the effect of the reform was driven by low-income workers. Some evidence is presented showing that liquidity constraints and financial (il)literacy may help to interpret these results.

Is Expected Utility an Ex-Hypothesis? Some Implications of Reference-Dependent Expected Utility Model

Rabin and Thaler (2001) declared Expected Utility an ex-hypothesis or a dead parrot alluding to the famous sketch from Monthy Pythons Flying Circus. Following Cox and Sadiraj (2006) and others, one should distinguish between Expected Utility (EU) theory (a purely mathematical theory based on axioms) and Expected Utility models (EU theory plus a given economic interpretation). The most prevalent EU model is one that assumes consequentialism (Rubinstein, 2012). Consequentialism states that the decision maker has a single binary preference relation comparing probability distributions over final wealth levels. Preference relations over wealth changes for different levels of wealth are derived from this single preference relation. EU theory plus consequentialism is referred to as the standard EU model. It is argued that most of the critique against EU is against the standard EU model, or against consequentialism. We replace consequentialism with reference-dependence, retaining the EU hypothesis. Using Sugden (2003) framework, we show that many violations of the standard EU model can be explained assuming this different interpretation. Among the topics considered are: WTA/WTP disparity, preference reversal, complementary symmetry, preference homogeneity, loss aversion, reflection effect and the coexistence of insurance and gambling.