Wealth Holdings Research Articles

The Financial Decisions of Immigrant and Native Households: Evidence from Italy

Using rich Italian data for the period 2006–2014, we analyze differences in financial behavior between natives and immigrants in a unified setting covering a wide set of outcomes and including a large set of covariates. We document sizeable gaps between native and immigrant households with respect to wealth holdings and financial decisions. Immigrant household heads hold less net wealth than native along the entire wealth distribution. Immigrant status reduces the likelihood of holding risky assets, housing, mortgages, businesses, and valuables, and it increases the likelihood of financial fragility. Standard regression results are corroborated by a propensity score matching strategy. Years since migration, country of origin, and the pattern of intermarriage also matter. The Great Recession has worsened the condition of immigrants in terms of wealth holdings, home ownership, and financial fragility.

Duty Free: Turning the Criminological Spotlight on Special Economic Zones

AbstractSpatially designated economic zones render countries vulnerable to crime and harm, while simultaneously diffusing and escalating these problems across the globe. Yet, criminological analysis of special economic zones (SEZs) and similar areas remains limited. This article analyses the kinds of criminality and harm attached to such fiscal and commodity enclaves. Our analysis begins with the history of SEZs. We then offer a typology of related harms: 1. illicit trade; 2. the protection of wealth holdings; and 3. environmental harm. Our closing theoretical discussion suggests how the expansion of economic strategies involving SEZs is generative of new and complex forms of harm and crime embedded in the spatial architecture of the global economy.

Who owes? Class struggle, inequality and the political economy of leverage in the twenty-first century

AbstractThe prevalent consensus in critical social sciences is that finance articulates the world economy as a global hierarchy of creditor-debtor relations that reproduce and further aggravate existing income and wealth inequalities. Class struggle is correspondingly understood as a conflict between elite creditors, who are members of the global top 1% of wealth holders, and mass debtors, who are burdened by growing costs of servicing public and private debts. This article offers an alternative understanding of how debt, inequality and class relate to one another. At its basis is the recognition that over the past four decades, finance has empowered upper class borrowers, including the top 1%, as it has magnified their capacity to generate capital gains and capture greater wealth and income shares via levered-up investments and other forms of positioning in financial and property markets. The article thus provides a political economy of leverage as power, showing how contemporary global finance has not given shape to a distributional conflict between creditors and debtors as two distinct classes, but instead has set debtors against debtors, and namely the greater borrowers against the lesser ones.

Wealth mobility in the United States: 1860–1870

AbstractWe offer new evidence on the dynamics of wealth holding in the United States over the Civil War decade based on a hand-linked random sample of wealth holders drawn from the 1860 census. Despite the wealth shock caused by emancipation, we find that patterns of wealth mobility were broadly similar for northern and southern residents in 1860. Looking at the determinants of individual wealth holding in 1870, we find that the elasticity with respect to 1860 wealth was quite low in both regions – consistent with high levels of wealth mobility.

Equity Return Expectations and Financial Wealth Holdings of U.S. Households

Abstract This paper examines the association between stock market return expectations and financial wealth holdings of older adults using the 2016 wave of the Health and Retirement Study. Our study finds that less than 30% of individuals assigned a greater than 50% probability that the market will earn a positive nominal return in the following year. However, considerable heterogeneities were observed across racial/ethnic groups. Health status, the cognitive functioning of older adults, and expectations of positive stock market return were positively associated with greater financial wealth holdings among households. Our study also finds that older age, and being female were associated with a higher probability of expected equity returns in the following period. Health status, cognition, and equity return expectations were positively associated with the financial wealth holdings of households. African Americans, Hispanics, and other races were negatively associated with the probability of equity return expectations and financial wealth holdings when compared with the reference group of non-Hispanic Whites. Overall, this study contributes to the literature by applying a unique mathematically derived measure of future return expectations, and extends the literature on equity return expectations and the financial portfolios of households. The negative association between being African American or Hispanic and financial wealth holdings is concerning. The findings from this study inform policy makers, and underscore the need for prioritizing programs and policies that can be play a critical role in building human capital, in promoting financial capability, and in bridging the financial wealth gap for households belonging to the disadvantaged and underserved racial ethnic groups.

Effect of Cash Forecasting Practice on Performance of Commercial Banks in Kenya

The purpose of the study was to analyze the effect of cash forecasting practice on performance of commercial banks in Kenya. The study was based on Portfolio theory of Cash Management, Cash Management theory, Transaction Cost theory, Free Cash Flow theory and pecking order theory. The study used mixed research design which involves collecting and analyzing both qualitative and quantitative data. The target population of the study comprised of the 6913 employees in management and supervisory cadres in commercial banks in Kenya. Stratified sampling technique was used to identify the sample size in every stratum. Data collection instruments were both structured and unstructured questionnaires. Data collection methods were both primary and secondary. The data was analyzed using Statistical Program for Social Sciences (SPSS) windows version 21.Multiple linear regression analysis was carried out to analyze the determinants of cash flow management practice on performance of commercial banks in Kenya. Pilot test was carried out for validity and reliability of research instruments. Regression analysis was carried out to test the significant levels of one variable to the other in the study. ANOVA was carried out to test the hypotheses of the study. The study is significant to the banking sector and the government of Kenya in formulation of different financial decisions and in policy making. The results of the study indicate that all the independent variables have a significant positive effect on performance of Commercial banks Kenya . The findings reveal that commercial banks in Kenya carry out cash forecasting practice and that inflation rates influence interest rates in commercial banks in Kenya. Cash forecasting practice was found to be positively related to performance of commercial banks in Kenya. The study recommends that the management of commercial banks in Kenya should be enhanced through frequent audits to be able to curb interest rates especially the unanticipated inflation which adversely affects the functions of money by undermining wealth holders’ confidence in its ability to be used as medium of exchange and store of value. The firms should have plans for their cash needs and requirements during a projected period, particularly one year and above to enable them achieve their set goals in advance and reduce the cost of capital and increase the returns of excess cash. They should also make sure that the banks’ cash funds are in the optimal utilization and there are no extra borrowings. They should also focus on surplus funds to invest in marketable securities and that period of inflation is when lenders lose while borrowers gain because the real value of the debt declines. They should also maintain the minimum liquidity requirement as stated by the Central Bank of Kenya as both illiquidity and excess liquidity are financial diseases that can easily erode the profit base of a bank as they affect banks’ attempt to attain high profitability level. They should also put into consideration liquidity levels in pursuit of high profit for it can cause great illiquidity, which reduces the customers’ patronage and loyalty.

Mercantilist inequality: wealth and poverty in Stockholm, 1650–1750†

AbstractThis article describes and analyses social structure, poverty, wealth, and economic inequality in Stockholm from 1650 to 1750. We begin by establishing the social structure, using census data and other sources. To study wealth and poverty, the main sources are a complete record of the wealth tax of 1715, comprising 17,782 taxpayers, and a total of 1,125 probate inventories sampled from the years 1650, 1700, and 1750. These provide detailed and sometimes surprising insights into the living standards of both the poor and the rich. Stockholm in this period was a starkly unequal city, with the top decile of wealth holders owning about 90 per cent of total wealth. We relate this inequality to mercantilist policies. The city was run as an oligarchy and the oligarchical political institutions engendered policies that were rigged for inequality. The case of Stockholm thus shows the need for the historical inequality literature to consider class and power relations to understand the determinants of inequality.

Disparate Recoveries: Wealth, Race, and the Working Class after the Great Recession

What does it mean to be working class in a society of extreme racial wealth inequality? Using data from the Survey of Consumer Finances, we investigate the wealth holdings of Black, Latinx, and white working-class households during the post–Great Recession (pre–COVID-19) period that spanned 2010 to 2019. We then explore the relationship between working-class and middle-class attainment using a wealth-based metric. We find that, in terms of their net worth, fewer Black working-class households benefitted from the economic recovery than white working-class households. Among white households, the working class saw the greatest increase in wealth in both absolute and relative terms. Working-class households were less likely to be middle class as defined by their wealth holdings, and Black and Latinx households were also less likely to be middle class. For Black households, racial identity is a stronger predictor of wealth attainment than occupational sector.

Heterogeneous Households, Wealth Disparity and Unconventional Monetary Policy

This paper explores the income and wealth effects through modeling heterogeneous households while studying the effects of Unconventional Monetary Policy (UMP). The research finds that, through the methodological application of Weighted Expectation Maximization (WEM) Cluster Modeling and subsequent calculation of the Malhalanobis Distance, through recent periods of quantitative easing and low interest rates, there has been notable volatility and bifurcation in the distributions of capital gains and income variables to U.S. households. We herein utilize the weights inherent in modern multiply imputed surveys, such as the Federal Reserve Board's Survey of Consumer Finances (SCF), to apply the EM algorithm to empirically study wealth disparity in the U.S. through the effect of unconventional monetary policy and low interest rates, due to the Financial Crisis of 2008 and the Sars-CoV-2 pandemic, on wealth holders.

Understanding the Black-White Wealth Gap in the United States

This paper examines the relationship between wealth holdings and patterns of various household characteristics, including education, occupation, wealth portfolio structures and inheritance. The focus is on comparing the wealth levels of Black and White Americans, and relating differences in these levels to socio-economic characteristics. We find that a combination of inheritance, education and occupation is significantly related to differences in wealth levels. However, household characteristics such as education, homeownership or business ownership are not by themselves pathways to reducing wealth gaps, let alone eliminating them. Financial literacy also does not appear to play a role in explaining the wealth gap.

Marketing Reparations for African American Slavery: Building an Ethical Foundation and Consensus among Millennials during a Pandemic

African American Citizenry is challenging the moral latitude of America for forced, uncompensated, free labor since the Emancipation Proclamation of 1863. The African Slaves became captives to Europeans destined for both South and North America and the Caribbean. Even more devastating than the horrors awaiting them on American shores, the enslaved had to face horrendous circumstances of survival subsequent to the treacherous journey itself. Twelve-million enslaved Africans—some were soon to become Americans—lost their lives during the Transatlantic Slave Trade. Wooden vessels sailed the Atlantic Ocean transporting human cargo that was destined to become chattel at auction to the highest bidder. The newly acquired African Slaves would be registered and transported to nearby plantations. Here they would earn their keep by sweltering the coffers of the Slave Owner’s production of spoils destined for the markets. Over the course of several generations, the enslaved African American production yielded several times their worth. The acquisition of wealth permeated industries of vast magnitude well beyond the plantation itself. The African American Slaves labored to meet the debt of manufacturers, retailers, industrial, commercial and the Slave Master’s demand for many years. The invisible hand has yielded a surplus of profits that has grown and it has manifested itself in wealth holdings several times over in the portfolios of the progeny of their own sons and daughters at the exclusion of the enslaved. The ethics of America comes into question as the moral indignation and inhumanity of slavery comes into question. Although America branded itself as the land of the free and the home of the brave, it has been far less than that to the enslaved African American. The research is a qualitative and descriptive study addressing Reparations for enslaved African Americans. Ninety-three surveys, N = 93 were completed by a cross section of respondents. This action was supplemented with several focus group sessions addressing Reparations, Racism, Discrimination, Compensation and certain Development Issues. Least Square Regression Statistics applied to analyze the assumptions showed that there are distinct differences in Millennial’s beliefs about Reparations. However, those differences could be reconciled because entitlement can be documented and proven. This study is unique because contrary to popular beliefs, there is considerable disagreement among Millennials themselves about support for Reparations of enslaved African Americans. African American Millennials overwhelmingly support Reparations, while White Millennials do not. Hence, the research investigates the source of disagreement, and it focuses on bridging the Reparations Cognitive Gap (RCG) existing between White and African American Millennials. The study also challenges the COVZY Kids to further advance the claim for Reparations for the African Americans.

The Determinants of Racial Disparities in Housing Returns

We identify the existence of a racial gap in housing returns that is an order of magnitude larger than disparities arising from housing costs alone. The returns gap is driven almost entirely by differences in distressed home sales (i.e. foreclosures and short sales). Black and Hispanic homeowners are both more likely to experience a distressed sale and to live in neighborhoods where distressed sales carry larger foreclosure discounts. Higher rates of distressed sales among minorities are driven by pre-existing differences in economic stability and neighborhood sorting. Black and Hispanic homeowners are more likely to default in response to increases in monthly payments, consistent with racial differences in liquid wealth holdings playing a key role in creating the observed disparities. We use quasi-experimental variation in the receipt of mortgage modifications to show that policies that encourage lenders to modify loans when homeowners can no longer afford their mortgages can mitigate gaps in housing returns, particularly if they are targeted towards minority homeowners or neighborhoods.

Financial literacy and financial decision-making at older ages

How well older households manage their wealth holdings is an important determinant of their financial security during retirement, yet little is known about their financial decision-making and how this relates to their financial literacy. Our paper fills this gap by measuring financial literacy among older persons in the Singapore Life Panel and examining its association with timely credit card debt repayment, stock market participation, and age-based investment risk diversification. Most older respondents understand interest compounding and inflation, but fewer than half know about risk diversification. Almost all older credit card holders pay off their balances in a timely manner, but only 40% hold stocks; fewer than 18% with $1000+ in assets hold portfolios consistent with age-appropriate investment glide paths. We further show that a one-unit higher financial literacy score is associated with a greater propensity to timely pay off credit card balances (1.5 ppts), to hold stock (8.3 ppts), and to follow an age-appropriate investment glide path (1.7 ppts).

Predatory Rulers, Credible Commitment and Tax Compliance: How War Does Not Make the State Under Weak Rule of Law

This paper explores an underappreciated factor which can be necessary for warfare to strengthen fiscal capacity. It argues that in contexts with lower respect for the rule of law and worse private property rights, rulers' predatory behavior should incline wealth holders to shelter their wealth and therefore tax compliance should be lower. This will make it unlikely that during armed warfare, when rulers engage in more predatory behavior such as confiscation, there will be any property or income to be taxed and hence states will be unlikely to invest in fiscal capacity. Under stronger rule of law and better private property rights, the constraints on the rulers' predatory behavior should provide higher security for wealth holders and they should be less likely to shelter wealth, bringing higher tax compliance. Such compliance makes it more likely that states can increase fiscal revenues during war and therefore will be more likely to invest in fiscal capacity. These expectations are tested with an original dataset of Ottoman waqfs in modern-day Greece between 1600 and 1912 in addition to annual Ottoman fiscal revenue data. Results indicate that wars increase wealth sheltering under lower rule of law, while it does not under higher rule of law. Furthermore, while wars do not increase fiscal revenues under lower rule of law, they increase fiscal revenues under higher rule of law.

Financial Literacy and Financial Decision-Making at Older Ages

How well older households manage their wealth holdings is an important determinant of their financial security during retirement, yet little is known about their financial decision-making and how this relates to their financial literacy. Our paper fills this gap by measuring financial literacy among older persons in the Singapore Life Panel and examining its association with timely credit card debt repayment, stock market participation, and age-based investment risk diversification. Most older respondents understand interest compounding and inflation, but fewer than half know about risk diversification. Almost all older credit card holders pay off their balances in a timely manner, but only 40% hold stocks; fewer than 18% with $1,000+ in assets hold portfolios consistent with age-appropriate investment glide paths. We further show that a one-unit higher financial literacy score is associated with a greater propensity to timely pay off credit card balances (1.5 ppts), to hold stock (8.3 ppts), and to follow an age-appropriate investment glide path (1.7 ppts).

Understanding the correlation between Alzheimer’s Disease polygenic risk, wealth, and the composition of wealth holdings

ABSTRACT We investigate how the genetic risk of developing Alzheimer’s Disease (AD) relates to saving behavior. Using nationally representative data from the 1996–2014 Health and Retirement Study (HRS), we find that genetic predisposition for AD correlates with, but is not causally related to how older individuals’ hold wealth in different asset types. People with a higher AD polygenic risk score (PGS) hold roughly 20 per cent less wealth in IRAs and contribute about 24 percent less to IRAs between survey periods. We hypothesize that people with a high risk of AD choose different portfolios: (i) because they know their genetic risk of developing AD from parental history, (ii) because they have the lower cognitive capacity, and (iii) because they indirectly learn about their genetic predisposition for AD as they age. Our extended model results show that the first two hypotheses do not account for the observed correlation. Consistent with the third hypothesis, the interaction between age and the AD PGS accounts for the correlation between genetic traits and asset holdings. Our findings have far-reaching implications for researchers using genetic data: when indirect learning about own predispositions is possible, correlations between genes and choices must be interpreted with caution.

Housing wealth and aged care: asset-based welfare in practice in three OECD countries

The transition of the baby boomer bulge into old age and their increasing longevity will lift the numbers of elderly in residential aged care. Population ageing and associated fiscal pressures have motivated governments to shift responsibility for the financing of aged care to the individual. We consider policies that include owner-occupiers’ housing wealth and imputed rental incomes in means tests that determine co-contribution charges for residential aged care. Differences in how housing wealth is included in the residential aged care resource tests of three OECD countries – Australia, England and the Netherlands – are documented. We find some neglected equity implications as tenants in all three countries typically pay higher co-payments for their residential aged care than homeowners with similar wealth holdings. These outcomes are a consequence of the concessional treatment of owners’ housing equity stakes, and of wider significance given the growing importance of asset-based welfare strategies. England has relatively progressive asset and income tests that offer more limited concessions.

Capitalization and its Legal Friends

Abstract Katharina Pistor’s argument in The Code of Capital about the constitutive role of legal practice for the creation and distribution of wealth requires contextualization; her claims about the stand-alone role of law in determining the political economy of global capitalism are exaggerated. My first intervention concerns the concept of capital. Capital evidently is not just a legal code, but also constitutes a financial accounting entity that emerges from processes of investment, which are embedded in (economic, social, political) structures that are facilitative of unequal distributions of rewards and risks. Legal coding should be considered as part of such ‘capitalization’ and as becoming more critical in the contemporary economy, in which capitalization increasingly happens through financial engineering and through capturing rents from ‘intangible capital’. Secondly, we can only understand the distributional implications of legal coding if we recognize a) the importance of rent-seeking in secularly stagnating economies and b) the particular class configurations in what Milanovic, B. (2019). Capitalism, alone. Cambridge, MA: Harvard University Press calls ‘liberal meritocratic capitalism’. The consolidation of a capital-rich and hard-working upper class in such a capitalist formation (the extreme case being United States) not just indicates a close alliance or overlap between holders of wealth and the professions (fund managers, legal advisers etc.) that serve them. It also indicates that social class structures – the paths of socialization they reproduce; their in-built social sorting mechanisms; their close association with ideologies of legitimate privilege – play a key role in reproducing economic distributional outcomes.

The Possibility for Stateless Dynastic Wealth and the Case of China

Part I of this paper explains how wealth managers have modified the trust to create the possibility for stateless dynastic wealth. By this I mean wealth that is held by a family through a trust that is established in a haven state to eliminate the power of other states to regulate and oversee transmission and management of wealth and to make it very difficult for courts in another state to levy against wealth on behalf of private creditors. These structures also permit legal tax avoidance if income and wealth is not attributed to family members. And they facilitate tax evasion by not reporting foreign income and wealth. I use the relatively novel structure of a perpetual purpose trust to illustrate. Part II is a case study of China. It draws on multiple sources of information to estimate the potential demand for wealth preservation services in China and the current extent of the use of such services. I selected China as a case study in part because it was in the remit of the conference for which this paper was written, which was sponsored by the Chinese Journal of Comparative Law. This was a happy coincidence. Several factors make China an interesting case study. Private wealth has grown exponentially in China in the last fifty years, creating large potential demand for wealth preservation services. But China has been slow in developing internal legal structures like family trusts that would enable wealth holders in China to preserve wealth using Chinese law and Chinese entities. This creates an incentive to move wealth outside of China in addition to the usual incentives canvassed in Part I. Political risk adds to the incentive to move wealth outside of China. But it seems that relatively little wealth has moved outside of China compared to other wealthy states. Some of this lack of uptake of wealth management services may be attributed to unfamiliarity with such services. I speculate that a significant part can be attributed to restrictions imposed by China on the movement of capital. These restrictions increase the cost of moving capital out of China. This would imply is that there is not strong intrinsic demand for the more exotic services wealth managers can provide, such as the structure described in Part I. This is consistent with the experience in the U.S. where a change in tax law in 1986 is thought to explain an increase in demand for perpetual trusts. If this speculation is correct, then China would expect there to be a significant increase in capital export if it liberalized capital accounts and increased taxes on wealth. And, if the U.S. adopted significant wealth taxes such as have been proposed by some progressive Democrats, then we should expect wealthy individuals to respond by increasing use of structures such as the structure described in Part I.

Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France

Abstract Measuring and understanding the evolution of wealth inequality is a key challenge for researchers, policy makers, and the general public. This paper breaks new ground on this topic by presenting a new method to estimate and study wealth inequality. This method combines fiscal data with household surveys and national accounts in order to provide annual wealth distribution series, with detailed breakdowns by percentiles, age, and assets. Using the case of France as an illustration, we show that the resulting series can be used to better analyze the evolution and the determinants of wealth-inequality dynamics over the 1970–2014 period. We show that the decline in wealth inequality ends in the early 1980s, marking the beginning of a rise in the top 1% wealth share, though with significant fluctuations due largely to asset price movements. Rising inequality in savings rates coupled with highly stratified rates of returns has led to rising wealth concentration in spite of the opposing effect of house price increases. We develop a simple simulation model highlighting how changes in the combination of unequal savings rates, rates of return, and labor earnings that occurred in the early 1980s generated large multiplicative effects that led to radically different steady-state levels of wealth inequality. Taking advantage of the joint distribution of income and wealth, we show that top wealth holders are almost exclusively top capital earners, and increasingly fewer are made up of top labor earners; it has become increasingly difficult in recent decades to access top wealth groups with one's labor income only.