MEASURING WEALTH WITH SURVEY DATA: AN EVALUATION OF THE 1983 SURVEY OF CONSUMER FINANCES

Because wealth estimates from survey data have usually fallen substantially short of independent aggregate estimates, survey data have not been seen as adequate for assessing questions dependent on a good representation of the entire distribution of wealth, such as estimates of wealth concentration. The 1983 Survey of Consumer Finances (SCF), which contains a supplementary sample of very high income households drawn from a tax-file sample frame, is the first U.S. survey since the 1963 Survey of Financial Characteristics of Consumers that offers hope of accurately measuring the entire wealth distribution. In this paper, we discuss the design of the survey, the critical issue of proper weighting to merge the supplementary sample with an area probability sample, and the role of imputation. We show that the use of ordinary area probability samples alone leads to probable bias in the measurement of highly concentrated assets such as stocks and bonds. We compare the SCF data with aggregates derived from the flow-of-funds accounts of the Federal Reserve Board. While methodological issues cloud exact comparisons, it appears overall that the SCF estimates are at least as credible as other aggregate measurements. Finally, we use the data to assess the change in concentration of wealth from 1963 to 1983. We estimate that the concentration of wealth in terms of households did not change significantly over this period.     

FROM DISCRETE TO CONTINUOUS‐TIME TRANSITION MATRICES IN INTRA‐DISTRIBUTION DYNAMICS ANALYSIS: AN APPLICATION TO PER CAPITA WEALTH IN EUROPE

Previous studies focusing on the intra‐distribution dynamics analysis have usually computed, in a Markov chain framework, discrete‐time transition matrices. Such an approach, however, can involve some limitations, especially when using stock variables. In order to illustrate the importance of the time‐scale issue when estimating transition matrices, this paper applies both discrete and continuous‐time approaches to a set of cross‐national European data on per capita wealth for the period 2000–10. The results reveal, on the one hand, that the continuous‐time estimation provides a most accurate estimation of transition probabilities and, on the other, that the differences between both approaches are especially remarkable in the long‐term equilibrium distribution.     

REVEALED POLITICAL POWER

When is a polity biased? Consider an “outsider” who observes policy data but observes neither citizens’ preferences nor the underlying distribution of political power. He views political power as if it were derived from wealth‐weighted voting, where the weights determine the wealth bias. Positive weights favor the rich whereas negative ones favor the poor. We show that any policy data is rationalized by any wealth‐weighted system. However, policy and polling observations together imply explicit bounds on the set of rationalizing biases. Accumulated data narrows this band. The inferential model is consistent with models of political competition for campaign contributions.     

Modeling of Income and Indicators of Poverty and Social Exclusion Using the Generalized Beta Distribution of the Second Kind

There are three reasons why estimation of parametric income distributions may be useful when empirical data and estimators are available: to stabilize estimation; to gain insight into the relationships between the characteristics of the theoretical distribution and a set of indicators, e.g. by sensitivity plots; and to deduce the whole distribution from known empirical indicators, when the raw data are not available. The European Union Statistics on Income and Living Conditions (EU‐SILC) survey is used to address these issues. In order to model the income distribution, we consider the generalized beta distribution of the second kind (GB2). A pseudo‐likelihood approach for fitting the distribution is considered, which takes into account the design features of the EU‐SILC survey. An ad‐hoc procedure for robustification of the sampling weights, which improves estimation, is presented. This method is compared to a non‐linear fit from the indicators. Variance estimation within a complex survey setting of the maximum pseudo‐likelihood estimates is done by linearization (a sandwich variance estimator), and a simplified formula for the sandwich variance, which accounts for clustering, is given. Performance of the fit and estimated indicators is evaluated graphically and numerically.     

The Gender Wealth Gap in Europe: Application of Machine Learning to Predict Individual-level Wealth

This article provides comparative estimates of the gender wealth gaps for 22 European countries, employing data from the Household Finance and Consumption Survey. The data on wealth are collected at the household level, while individual-level data are needed for the estimates of gender wealth gaps. We propose a novel approach using machine learning and model averaging methods to predict individual-level wealth data for multi-person households. Our results suggest that random forest performs best as the predicting tool for this exercise, outperforming elastic net and Bayesian model averaging. The estimated gender wealth gaps tend to be in favor of men, especially at the top of the wealth distribution. Men have 24 percent more wealth than women on average. We also find that a high home ownership rate is associated with a smaller country-level gender wealth gap. Our estimates suggest that the individual-level wealth inequality is on average 3 pp higher than the household-level wealth inequality in multi-member households.     

ON THE SIZE DISTRIBUTION OF WEALTH IN CANADA*

This paper is concerned with measurement of the size distribution of personal wealth in Canada. The only available estimates of this distribution are those provided on the occasions when Statistics Canada's Survey of Consumer Finance has surveyed assets and debts. Results of the latest “SCF” to do this, that of 1977, are not yet available. The paper shows that the previous study, conducted in 1970, indicated wealth-inequality as viewed by top quantile shares roughly of the same order as estimated by others for the U.S. and U.K. A comparison of asset and debt aggregates implied by the survey, however, with independent totals indicates that for almost all items the SCF likely under-estimated true holdings. The possible relative importance of sampling and non-sampling errors in explaining this distortion is considered, drawing on Monte Carlo evidence and American validation studies of survey response. It is concluded that sampling error is unlikely to provide the explanation for SCF discrepancies in aggregates, but that non-sampling error is capable of doing so. Finally the 1970 SCF distribution of wealth is re-estimated. First a correction is made for hypothetical differential response according to true net worth. Second an attempt is made to remove the effects of under-reporting by respondents. The “best-guess” re-estimated distribution exhibits mean net worth considerably greater than shown by the SCF but only a slightly greater degree of concentration. Under certain fundamental assumptions this result is surprisingly robust. The appropriate conclusion is not that survey estimates of the distribution of wealth are reliable, but that the strong non-sampling errors affecting the 1970 Canadian SCF wealth estimates may have been composed of almost completely offsetting sources of bias.     

PREPAID ELECTRICITY PLAN AND ELECTRICITY CONSUMPTION BEHAVIOR

By using customer‐level residential billing data from 2008 to 2010 of a major utility company in Phoenix metropolitan area, this study adopts a matching approach and a difference‐in‐differences method to estimate empirically the impact of a prepaid electricity plan on residential electricity consumption, after correcting for selection bias. Results show that the prepaid program is associated with a 12% reduction in electricity usage, customers with lower level of wealth or those with higher amount of arrearage prior to switching to the prepaid program tend to save more electricity after switching, and prepaid customers save more electricity in the summer than winter. (JEL L94, Q41)     

Viewpoint: Measuring the well‐being of the poor with income or consumption: a Canadian perspective

Abstract There is a long tradition of using consumption measures derived from Statistics Canada's household expenditures surveys to study material well‐being, inequality, and poverty. We offer an introduction to this research. Income and consumption measures give different pictures of the patterns of material well‐being in Canada, but the differences are not as large as in the US. We also provide a comparison to Meyer and Sullivan's results on data quality. Canadian expenditure surveys are of high quality. Unique aspects of these surveys (variation in quality control measures over time and the possibility of comparing to income tax data) provide important insights into the quality of survey data on income and consumption.     

VOLUNTARY WORK AND WAGES

The effects of voluntary work on earnings have recently been studied for some developed countries such as Canada, France and Austria. This paper extends this line of research to Italy, using data from the European Union Statistics on Income and Living Conditions (EU‐SILC) dataset. A double methodological approach is used in order to control for unobserved heterogeneity: Heckman and IV methods are employed to account for unobserved worker heterogeneity and endogeneity bias. Empirical results show that, when the unobserved heterogeneity is taken into account, a wage premium of 2.7 percent emerges, quite small if compared to previous investigations on Canada and Austria. The investigation into the channels of influence of volunteering on wages gives support to the hypotheses that volunteering enables the access to fruitful informal networks, avoids the human capital deterioration and provides a signal for intrinsically motivated individuals.     

A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’

In Capital in the Twenty-First Century, Thomas Piketty presents a rich set of data that deals with income and wealth distribution, output-wealth dynamics and rates of return. He also proposes some ‘laws of capitalism’. At the core of his argument lies the ‘fundamental inequality of capitalism’, an empirical regularity stating that the rate of return on wealth is greater than the growth rate of the economy. This simple construct allows him to conclude that increasing wealth (and income) inequality is an inevitable outcome of capitalism. While we share some of his conclusions, we will highlight some shortcomings of his approach based on a Cambridge post-Keynesian growth-and-distribution model. The paper makes four points. First, r?>?g is not necessarily associated with increasing inequality in functional distribution. Second, Piketty succumbs to a fallacy of composition when he claims that a necessary condition for r?>?g is that capitalists save a large share of their capital income. Third, post-Keynesians can learn from Piketty's insights about personal income distribution and incorporate them into their models. Fourth, we reiterate the post-Keynesian argument that a well-behaved aggregate production function does not exist and cannot explain income distribution.     

Wealth inequality in Central and Eastern Europe: Evidence from household survey and rich lists’ data combined*

We study how the problem of the ‘missing rich’, the underrepresentation of the wealthiest in household surveys, affects wealth inequality estimates for the post‐socialist countries of Central and Eastern Europe (CEE). The survey data from the second wave of the Household Finance and Consumption Survey (HFCS) are joined with the data from the national rich lists for Estonia, Hungary, Latvia, Poland and Slovakia. Pareto distribution is fitted to the joined survey and rich lists’ data to impute the missing observations for the largest wealth values. We provide the first estimates of the top‐corrected wealth inequality for the CEE region in 2013/2014. Despite a short period of wealth accumulation during the post‐1989 market economy period, our adjustment procedure reveals that wealth inequality in the Baltic countries is comparable to that of Germany (one of the most wealth‐unequal countries in Europe), while in Poland and Hungary it has reached levels observed in France or Spain. We discuss possible explanations of these findings with reference to the speed and range of privatization processes, extent of income inequality, and the role of inheritances and wealth taxes in the region.     

A COMPARISON OF CONDITIONAL AND UNCONDITIONAL APPROACHES IN VALUE‐AT‐RISK ESTIMATION*

In this paper, we attempt to find the most important factor causing the differences in the performance of Value‐at‐Risk (VaR) estimation by comparing the performances of conditional and unconditional approaches. For each approach, we use various methods and models with different degrees of flexibility in their distributions including S_U‐normal distribution, which is one of the most flexible distribution functions. Our empirical results underscore the importance of the flexibility‐of‐distribution function in VaR estimation models. Even though it seems to be unclear which approach is better between conditional and unconditional approaches, it seems to be clear that the more flexible distribution we use, the better the performance, regardless of which approach we use.     

ESTIMATES OF HOUSEHOLD WEALTH INEQUALITY IN THE U.S., 1962–1983

The study has two major objectives. The first is to determine time trends in household wealth inequality in the U.S. over the 1962–83 period. Four concepts of wealth are analyzed: (i) total household wealth, defined as total household assets less liabilities; (ii) fungible wealth, defined as total household wealth less consumer durables and household inventories; (iii) financial wealth, defined as fungible wealth less equity in owner-occupied housing; and (iv) capital wealth, defined as financial wealth less currency, checking accounts, and time deposits. Relying on a variety of data sources, I find that wealth inequality remained relatively constant from about 1962 to 1973, fell sharply from about 1973 to about 1979, and then rose sharply between 1979 and 1983. Concentration in 1983 was greater than that in 1962 for financial and capital wealth but of similar magnitude for total and fungible wealth. The second, methodological in nature, is to analyze the effect on measured inequality of the alignment of raw survey data to national balance sheet totals. I find that the alignment process can significantly affect point estimates of household wealth distribution but does not generally affect the direction of inequality trends.     

Reform,Growth, and Inequality in China*

This paper provides a survey of the literature on inequality in China – level, change, causes, and consequences. It attempts to answer six main questions. How much has inequality risen? What is its relation to poverty alleviation? What has happened to wealth inequality? What are the main dimensions of rising income inequality? The dimensions examined are: the rural–urban divide; urban labor market reform; regional divergence; rural–urban migration; and entrepreneurship, rent‐seeking, and corruption. Was it inevitable that inequality should rise so much? Does it matter that inequality has risen? Income distribution in China is bound up with both economic reform and economic growth. This paper concludes by considering the countervailing forces that will determine the path of inequality in future years.     

TESTING CONSUMERS' ASYMMETRIC PERCEPTION OF CHANGES IN HOUSEHOLD FINANCIAL SITUATION

Using empirical analysis, this study shows that individuals perceive negative changes in their financial situation as larger relative to positive changes. Evidence of this asymmetry is provided using survey data on individual expectations, perceptions, income, and wealth. The study's results are in line with results in the psychological‐economic literature but, contrary to that literature, are obtained by analyzing panel survey data, rather than experimental evidence. These results cast some doubts on the tendency of economists to treat symmetrically the relation between economic variables and income or wealth in their models.     

Accounting for Cross‐Country Differences in Wealth Inequality

There is considerable cross‐country variation in levels of household wealth and in wealth inequality. This paper assesses the extent to which these differences can be accounted for by differences in the distributions of households' demographic and economic characteristics. A counterfactual decomposition analysis of micro data from five countries (Italy, U.K., U.S., Sweden and Finland) is used to identify the effects of characteristics on component wealth holdings, their value and their distribution. The findings of the paper suggest that the biggest share of cross‐country differences is not attributable to the distribution of household demographic and economic characteristics but rather reflect strong unexplained country effects.     

Consumption,Income, and Wealth: Evidence from Age,Cohort, and Period Elasticities

This paper examines the relationship between non‐durable consumption, income, and wealth (housing and financial) allowing explicitly for generational heterogeneity. A framework is proposed to disentangle cohort, age, and period effects and the empirical analysis is based on the U.S. Consumer Expenditure Survey data. We find that there are significant generational differences and the results highlight the range of elasticities implicit in results presented, thus far, by age groups. Moreover, we find supporting evidence of humped shaped age profiles for the elasticity of consumption with respect to income and the importance of financial wealth for those aged 60+. The framework also allows us to generate cohort profiles which draw attention to the negative role of housing wealth for generation X, and period profiles which reinforce the role of financial wealth for the baby‐boom generation.     

QUANTILE FORECASTS OF FINANCIAL RETURNS USING REALIZED GARCH MODELS*

This article applies the realized generalized autoregressive conditional heteroskedasticity (GARCH) model, which incorporates the GARCH model with realized volatility, to quantile forecasts of financial returns, such as Value‐at‐Risk and expected shortfall. Student's t‐ and skewed Student's t‐distributions as well as normal distribution are used for the return distribution. The main results for the S&P 500 stock index are: (i) the realized GARCH model with the skewed Student's t‐distribution performs better than that with the normal and Student's t‐distributions and the exponential GARCH model using the daily returns only; and (ii) using the realized kernel to take account of microstructure noise does not improve the performance.     

Social Conflict and Gradual Political Succession: An Illustrative Model*

This paper studies the evolution of political institutions in the face of conflict. We examine institutional reform in a class of pivotal mechanisms—institutions that behave as if the resulting policy were determined by a “pivotal” decision maker drawn from the potential population of citizens and who holds full policy‐making authority at the time. A rule‐of‐succession describes the process by which pivotal decision makers in period t + 1 are, themselves, chosen by pivotal decision makers in period t. Two sources of conflict—class conflict, arising from differences in wealth, and ideological conflict, arising from differences in preferences—are examined. In each case, we characterize the unique Markov‐perfect equilibrium of the associated dynamic political game, and show that public decision‐making authority evolves monotonically downward in wealth and upward in ideological predisposition toward the public good. We then examine rules‐of‐succession when ideology and wealth exhibit correlation.     

The Effects of Wealth and Income on Subjective Well‐Being and Ill‐Being*

The accepted view among psychologists and, increasingly, economists is that household income has statistically significant but only small effects on measures of subjective well‐being. Income, however, is clearly an imperfect measure of the economic circumstances of households. Using data drawn from the 2002 wave of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, this paper demonstrates that wealth, which can be viewed as providing a degree of economic security, is at least as important to well‐being and ill‐being as income.