Distribution Of Worth Research Articles

Capital risk, fiscal policy, and the distribution of wealth

We develop a dynamic model economy where self-employed entrepreneurs allocate their net worth to their firm capital and risk-less government bonds, facing borrowing constraints, uninsurable labour endowment and capital depreciation risk. We derive a numerical approximation of the model’s equilibrium and compare it with a benchmark economy with no capital risk. Unlike labour endowment risk, capital risk reduces aggregate capital accumulation and wages and generates a positive risk premium. Low- (high-) net-worth entrepreneurs, whose consumption depends primarily on labour (financial) income, hold higher (lower) capital risk exposure. These patterns exacerbate inequality by increasing the share of financially constrained individuals and fattening the tails of the net worth distribution. Fiscal policy affects these outcomes by redistributing resources and affecting the risk premium. Capital tax cuts benefit more low- or high-net-worth entrepreneurs, depending on whether taxes on bonds or labour income finance them.

Accounting for Wealth Concentration in the US

The recent literature has argued for high concentration of earnings, differences in rates of return on assets and bequests as potential determinants of the high level of wealth concentration in the US. Analyzing the joint distribution of earnings, capital income and net worth, we find evidence for excess returns on investment among the highest income groups. Nonetheless, concentration of labor earnings is the primary source of wealth concentration in the US. This finding reflects the high correlation between earnings and wealth in the data, as well as the fact that earnings are a major source of income for top income and wealth groups.

Heterogeneity and Persistence in Returns to Wealth

We provide a systematic analysis of the properties of individual returns to wealth using 12 years of population data from Norway's administrative tax records. We document a number of novel results. First, individuals earn markedly different average returns on their net worth (a standard deviation of 22.1%) and on its components. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within narrow asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the net worth distribution increases the return by 18 percentage points (and 10 percentage points if looking at net‐of‐tax returns). Fourth, individual wealth returns exhibit substantial persistence over time. We argue that while this persistence partly arises from stable differences in risk exposure and assets scale, it also reflects heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

COVID-19 Crisis, Bankruptcy Risk, and Transition Dynamics

The COVID-19 pandemic has pushed many firms to the edge of bankruptcy and revived concerns of a prolonged/deep recession. The government has introduced various policies to mitigate its economic impact. We build a continuous time heterogeneous agent model to study (i) corporate bankruptcy risks, and (ii) the transition dynamics of the economy. This general framework is applied for understanding the implications of the COVID-19 economic crisis. The higher the bankruptcy rate, the faster the transition towards the new long run steady state. Transition speed decreases as the mass of firms in the upper tail of the net worth distribution increases. While broad fiscal policies are relatively more effective in reducing bankruptcy risks, monetary policies of providing market liquidity are more effective in generating faster transition dynamics.

The financial transmission of shocks in a simple hybrid macroeconomic agent based model

Tracking the chain of events generated by an aggregate shock in an Agent Based Model (ABM) is apparently an impossible mission. Employing the methodology described in Assenza and Delli Gatti (J Econ Dyn Control 37(8):1659–1682 2013) (AD2013 hereafter), in the present paper we show that such a task can be carried out in a straightforward way by using a hybrid macro ABM consisting of a IS curve, an Aggregate Supply (AS) curve and a Taylor Rule (TR) in that aggregate investment is a function of the moments of the distribution of firms’ net worth. For each shock (fiscal expansion, monetary tightening, financial shock) we can decompose the change of the aggregate scale of activity (measured by the employment rate) in a first round effect – i.e., the change generated by the shock keeping the moments of the distribution of net worth at the pre-shock level – and a second round effect, i.e., the change brought about by the variation in the moments induced by the aggregate shock. In turn, the second round effect can be decomposed in a term that would show up also in a pure Representative Agent setting (RA component) and a term that is specific to the model with Heterogeneous Agents (HA component). In all the cases considered, the first round effect explains most of the actual change of the output gap. The second round effect is unambiguously negative. The HA component has the same sign of the RA component and explains a sizable fraction of the second round effect.

From Saving Comes Having? Disentangling the Impact of Savings on Inequality

This paper investigates the channels through which saving flows impact the dynamics of wealth inequality. The analysis relies on an administrative panel that reports the assets and income of every Swedish resident at the yearly frequency. We document that the saving rate, defined as saving from labor income divided by net worth, is on average a decreasing function of net worth itself. The saving rate is also highly heterogeneous within net worth brackets. Heterogeneity across and within net worth brackets have conflicting effects on wealth inequality. As a result, saving rate heterogeneity is measured to have a strong impact on social mobility but only a weak impact on the distribution of net worth. Heterogeneity in wealth return is instead the main driver of the recent increase in top wealth shares.

When Does My Future Begin? Student Debt and Intragenerational Mobility

Higher education financing policy largely assumes that college graduates enjoy equal opportunities for economic mobility regardless of how they finance their degrees. To examine this contention, this study uses data from the National Longitudinal Survey of Youth 1979 to compare the time it takes to move up the economic ladder for young adult college graduates who acquired student debt and those who did not. Findings reveal that those who acquired student debt take longer to reach the midpoint of the net worth distribution than those who did not acquire student debt. In fact, even after controlling for key demographic differences, acquiring $10,000 in student loans—only one-third of the average student debt load—is associated with an 18% decrease in the rate of achieving median net worth. Additionally, student debt may be associated with a slower rate of reaching median income; here, an additional $10,000 in student loans is associated with a 9% decrease in the rate of achieving median income, although graphical evidence suggests these differences do not emerge until about age 35. These findings reveal inequities in current education financing policy.

How inheritances shape wealth distributions: An international comparison

We use data from the European Household Finance and Consumption Survey in order to examine the distributional effect of intergenerational wealth transfers on the net worth distribution in 8 European countries and compare it to recent findings for the US. To do so, we resort to the decomposition of the coefficient of variation as suggested and applied by Wolff (1987, 2002, 2015) and Wolff and Gittleman (2014). The results seem to imply that inheritances and gifts have a vastly equalizing effect on inequality in household wealth in all 8 countries.

The double one percent: Identifying an elite and a super-elite using the joint distribution of income and net worth

Growing inequality has heightened awareness of those at the top of the income and wealth distributions, and researchers are beginning to acknowledge the need for a way to identify top households that simultaneously accounts for their income and net worth. We contribute to the literatures on top income and wealth households by introducing a measure of top status that includes a larger number of affluent households and that explicitly accounts for the interrelationship between income and wealth. Our innovation is to start with both income and wealth holders and to divide the top into three groups: those who are top income only, those who are top net worth only, and those who are at the top of both distributions (the double one percent). Our results show that the top three groups are unique financially and demographically in ways that inform understanding of inequality and the processes that lead to membership in top income and wealth positions. Perhaps most importantly, our results identify those who are merely elite and those who occupy even more exclusive, or super elite, positions at the top of both the income and wealth distributions.

Tossed and turned: Wealth dynamics of U.S. households 2007-2009

For many years, the cross-sectional Survey of Consumer Finances (SCF) has shown relatively weak or inconsistent changes in the shape of the distribution of net worth, despite many shifts in income and other economic factors. In 2009, households that had taken part in the 2007 SCF were re-interviewed to obtain information on the changes in their financial condition over the period of the intervening financial crisis. Looked at as a second cross section, the 2009 data show a pattern of wealth distribution very similar in shape to what had been seen in the earlier cross sections. Between the two years, however, there was considerable variation in the relative positions of households within the wealth distribution. This paper presents data on the changed situation of households and it decomposes the observed wealth changes in terms of underlying portfolio shifts. It is generally recognized that changes in the value of residential real estate, corporate equities and private businesses were important sources of wealth losses. Although the data presented here confirm that picture, they also show a great deal of heterogeneity below the aggregate level. The observed stability of the pseudo-cross-sectional wealth shares in the panel despite the underlying turmoil is largely a consequence of changes in values of businesses and equities among comparatively wealthy households offsetting changes in the value of housing assets among other households.

Stationary liquid fuel fast reactor SLFFR — Part II: Safety analysis

Safety characteristics have been evaluated for the stationary liquid fuel fast reactor (SLFFR) proposed for effective burning of hazardous TRU elements of used nuclear fuel. In order to model the geometrical configuration and reactivity feedback mechanisms unique to SLFFR, a multi-channel safety analysis code named MUSA was developed. MUSA solves the time-dependent coupled neutronics and thermal-fluidic problems. The thermal-fluidic behavior of the core is described by representing the core with one-dimensional parallel channels. The primary heat transport system is modeled by connecting compressible volumes by liquid segments. A point kinetics model with six delayed neutron groups is used to represent the fission power transients. The reactivity feedback is estimated by combining the temperature and density variations of liquid fuel, structural material and sodium coolant with the corresponding axial distributions of reactivity worth in each individual thermal-fluidic channel. Preliminary verification tests with a conventional solid fuel reactor agreed well with the reference solutions obtained with the SAS4A/SASSYS-1 code. Transient analyses of SLFFR were performed for unprotected transient over-power (UTOP), unprotected loss of heat sink (ULOHS) and unprotected loss of flow (ULOF) accidents. The results showed that the thermal expansion of liquid fuel provides sufficiently large negative feedback reactivity for passive shutdown of UTOP and ULOHS. The ULOF transient is also terminated passively with the negative reactivity introduced by the gas expansion modules installed at the core periphery. The maximum coolant temperatures have sufficient margins to the sodium boiling point for all three unprotected transient scenarios.

Wealth Inequality Among Immigrants: Consistent Racial/Ethnic Inequality in the United States

Wealth is a strong indicator of immigrant integration in U.S. society. Drawing on new assimilation theory, we highlight the importance of racial/ethnic group boundaries and propose different paths of wealth integration among U.S. immigrants. Using data from the Survey of Income and Program Participation and quantile regression, we show that race/ethnicity shapes immigrant wealth inequality across the entire distribution of net worth, along with immigrants’ U.S. experience, such as immigrant status, U.S. education, English language proficiency, and time spent in the United States. Our results document consistent racial/ethnic inequality among immigrants, also evidenced among the U.S. born, revealing that even when accounting for key aspects of U.S. experience, wealth inequality with whites for Latino and black immigrants is strong.

A Note on the Owen Value for Glove Games

A well-known and simple game to model markets is the glove game where worth is produced by building matching pairs. For glove games, different concepts, like the Shapley value, the component restricted Shapley value or the Owen value, yield different distributions of worth. While the Shapley value does not distinguish between productive and unproductive agents in the market and the component restricted Shapley value does not consider imbalancedness of the market, the Owen value accounts for both. As computational effort for Shapley-based allocation rules is generally high, this note provides a computationally efficient formula for the Owen value (and the component restricted Shapley value) for glove games in case of minimal winning coalitions. A comparison of the efficient formulas highlights the above-mentioned differences.

Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality?

A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated at each point in time and the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the income tax system in reducing wealth inequality.

Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality?

A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated at each point in time and the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the income tax system in reducing wealth inequality.

Efficient Formulas and Computational Efficiency for Glove Games

A well known and simple game to model markets is the glove game where worth is produced by building matching pairs. For glove games, different concepts, like the Shapley value, the restricted Shapley value or the Owen value, yield different distributions of worth. Moreover, computational effort of these values is in general very high. This paper provides efficient allocation formulas of the component restricted Shapley value and the Owen value for glove games in case of efficient coalitions.

Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances

The Federal Reserve Board's Survey of Consumer Finances for 2013 provides insights into the evolution of family income and net worth since the previous time the survey was conducted, in 2010. The survey shows that, over the 2010-13 period, the median value of real (inflation-adjusted) family income before taxes fell 5 percent, while mean income increased 4 percent. The differential movements in median and mean incomes are consistent with increased income inequality over the 2010-13 period, though some of that differential growth simply reversed the cyclical decrease in income inequality that occurred between 2007 and 2010. Both median and mean real family net worth were little changed over the 2010-13 period, and the data suggest that the distribution of net worth also became more unequal over this period. Offsetting changes in asset ownership rates and asset prices left the middle of the net worth distribution relatively unchanged, while the top and bottom of the net worth distribution moved in different directions. This article reviews these and other changes in the financial condition of U.S. families, including developments in assets, liabilities, debt payments, and credit market experiences.

Wealth Accumulation in the US: Do Inheritances and Bequests Play a Significant Role?

This paper formulates an overlapping generations model with both life–cycle saving and altruistic bequests. For a given distribution of earning abilities, the model generates a stationary steady–state capital–to–labor ratio for the economy as a whole and a stationary distribution of net worth among households. We calibrate the model, using the 1995 Survey of Consumer Finances to fix the distribution of earning abilities, and using total 1995 U.S. wealth and Federal estate tax revenues to fix other key parameters. The analysis specifies its version of the Federal estate tax in detail, estimating the empirical degree of tax avoidance. Simulations show that the model can reproduce the high degree of wealth concentration evident in U.S. data. Most surprisingly, the analysis also suggests that the U.S. economy’s steady–state capital–to–output ratio will be insensitive to changes in the national debt and social security.

An Exploration of the Changes in Consumption Expenditure of the Retired Households in South Korea

This study analyzed the changes in household consumption expenditure of retired households using Korean panel data. We compared the pre and post retirement-consumption levels in different consumption categories using panel data. Paired t-test showed that changes in the consumption patterns before and after retirement were not significant except for the households in the third net worth quartile. Analyzing the effect of retirement on the level of household consumption expenditure, this study found that the effect of retirement was not significant in overall, although retirement had a negative effect on the level of consumption expenditure among households in the lowest net worth distribution. Understanding changes in consumption patterns of retiring households provides important information to design social security policies.

Wealth data quality in the National Income Dynamics Study Wave 2

This paper examines the quality of data on household assets, liabilities and net worth in the South African National Income Dynamics Study (NIDS) Wave 2. The NIDS is the first nationally representative survey on household wealth in South Africa. The cross-sectionally weighted data are found to be fit for use in terms of the univariate distributions of net worth, assets and liabilities, but population totals are probably underestimated due to the presence of missing wealth data in Phase 2 of Wave 2 that is not taken into account in the weights. When compared with national accounts estimates of household net worth, there is an apparent inversion of the estimated totals of financial assets versus non-financial assets. Further research is required into why this is so. We find that the NIDS wealth module is a suitable instrument for the analysis of household wealth.