Inheritance and inequality when wealth enters the utility function

The distribution of wealth and its dynamic development are analyzed within a non-overlapping generations model. All individuals have identical preferences and abilities. Wealth is represented by land, which is available in fixed aggregate supply. Utility depends on a perishable consumption good and—due to a bequest and/or a prestige motive—in addition on land owned. Two configurations can occur as long run equilbrium: equality and two class dichotomy. All Two Class Equilibria are unstable. The Equality Equilibrium is unstable if and only if land is sufficiently productive. In the case of instability there is a process towards maximal concentration of wealth.For helpful discussions I am indebted to G. Clemenz, S. Krasa, and M. Winkler.     

Is Altruism Important for Understanding the Long-Run Effects of Social Security?

This paper quantifies the effects of social security on capital accumulation and wealth distribution in a life-cycle framework with altruistic individuals. The main findings of this paper are that the current U.S. social security system has a significant impact on capital accumulation and wealth distribution. I find that social security crowds out 8% of the capital stock of an economy without social security. This effect is driven by the distortions of labor supply due to the taxation of labor income rather than by the intergenerational redistribution of income imposed by the social security system. In contrast to previous analysis, I found that social security does not affect the savings rate of the economy. Another interesting finding is that even though the current U.S. social security system is progressive in its benefits, it may lead to a more dispersed distribution of wealth. Journal of Economic Literature Classification Numbers: D31, D58, E2, E6, H55, J22, J26.     

On the Welfare Effects of Eliminating Business Cycles

We investigate the welfare effects of eliminating business cycles in a model with substantial consumer heterogeneity. The heterogeneity arises from uninsurable and idiosyncratic uncertainty in preferences and employment, where, regarding employment, we distinguish among employment and short- and long-term unemployment. We calibrate the model to match the distribution of wealth in U.S. data and features of transitions between employment and unemployment. Unlike previous studies, we study how business cycles affect different groups of consumers. We conclude that the cost of cycles is small for almost all groups and, indeed, is negative for some.Journal of Economic LiteratureClassification Numbers: C68, D31, D61, E32.     

INTERNATIONAL COMPARISONS OF WEALTH INEQUALITY

This study presents reasonably comparable estimates of the size distribution of household or personal wealth for eight OECD countries—Australia, Canada, France, Germany, Japan, Sweden, the United Kingdom, and the United States. In the mid-1980s, the U.S. ranked as the most unequal and Japan the least, while the other six countries had roughly comparable levels of wealth inequality. Moreover, while wealth inequality rose sharply in the U.S. during the 1980s, it increased modestly in Sweden and showed little change or a slight decline in Canada, France, and the U.K. A comparison of time trends for the U.K. and the U.S. suggests that the relatively high wealth inequality in the U.S. in the 1980s represents a marked turnaround from the 1950s, when the U.S. was considerably more equal in terms of wealth ownership than the U.K. Comparative results for the two countries hold for both conventional (marketable) wealth and for augmented wealth, which includes a valuation of public and private pension wealth.     

Top Wealth Shares in Australia 1915–2012

Combining data from surveys, inheritance tax records, and rich lists, we estimate top wealth shares for Australia from World War I until the present day. We find that the top 1 percent share declined by two‐thirds from 1915 until the late 1960s, and rose from the late 1970s to 2010. The recent increase is sharpest at the top of the distribution, with the top 0.001 percent wealth share tripling from 1984 to 2012. The trend in top wealth shares is similar to that in Australian top income shares (though the drop in the first half of the twentieth century is larger for wealth than income shares). Since the early twentieth century, top wealth shares in Australia have been lower than in the U.K. and U.S.     

Axiomatic reference-dependence in behavior toward others and toward risk

Summary. This paper considers the applicability of the standard separability axiom for both risk and other-regarding preferences, and advances arguments why separability might fail. An alternative axiom, which is immune to these arguments, leads to a preference representation that is additively separable in a reference variable and the differences between the other variables and the reference variable. For other-regarding preferences the reference variable is the decision-maker’s own payoff, and the resulting representation coincides with the Fehr-Schmidt model. For risk preferences the reference variable is initial wealth, and the resulting representation is a generalization of prospect theory.Received: 28 April 2004, Revised: 27 April 2005, JEL Classification Numbers: D81, D64.An earlier version of this paper was titled “An Axiomatic Characterization of the Fehr-Schmidt Model of Inequity Aversion.” I am grateful to Rachel Croson, Jill Stowe, and Karl Vind for helpful comments. Financial support was provided by the Private Enterprise Research Center, the Program in the Economics of Public Policy, and the Program to Enhance Scholarly and Creative Activities.     

Politico-economic inequality and the comovement of government purchases

This paper explores the implications of economic and political inequality for the comovement of government purchases with macroeconomic fluctuations. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income taxes. A key feature of the model is a wealth bias in the political aggregation process. When calibrated to U.S. wealth inequality and exposed to aggregate productivity shocks, such a model is able to generate weaker positive comovement of government purchases than models with no political wealth bias. The wealth bias that matches the cross-sectional campaign contribution distribution by income is consistent with the mild positive comovement of government purchases in the aggregate data. We thus provide an empirically relevant example where economic and political heterogeneity matter for aggregate dynamics.     

A COMPARATIVE ANALYSIS OF HOUSEHOLD WEALTH PATTERNS IN FRANCE AND THE UNITED STATES

We find that household wealth is distributed more unequally in the U.S. in 1983 than France in 1986. The Gini coefficient is 0.77 for the U.S. and 0.71 for France. There are also significant differences in the composition of wealth. Owner-occupied housing accounted for half of total assets in France, and only 30 percent in the U.S., while corporate stock and financial securities amounted to 19 percent in the U.S. and 8 percent in France. The debt-equity ratio was 0.13 in France and 0.20 in the U.S. The age-wealth profile in the two countries had the characteristic hump-shape predicted by the life-cycle model, but the profile was much flatter in France and peaked for families aged 50–59 in France, compared to 60–69 in the US.     

HOUSING WEALTH AND U.S. MONEY DEMAND: A PANEL ESTIMATION

This article estimates a panel model for U.S. money demand using annual state‐level data for the period from 1977 to 2008. We incorporate housing wealth in the demand‐for‐money function and find strong evidence of a relationship between a broad monetary aggregate and housing wealth. This finding is robust to the inclusion of variables measuring financial heterogeneity across U.S. regions. Breaking up the sample in two subperiods shows that panel estimates including housing wealth yield more stable coefficients than both time‐series estimates and panel estimates excluding housing wealth. We also show that the link between money and housing wealth predates the recent boom‐and‐bust cycle. (JEL E41, E52)     

Competitive screening in insurance markets with endogenous wealth heterogeneity

We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high-risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.     

Poverty Traps, Indeterminacy, and the Wealth Distribution

We consider a one-sector growth model in continuous time with a production externality and endogenous labor supply. There is a continuum of households who have identical preferences but differ with respect to their initial wealth. We show that there exist economies such that an indeterminate steady state exists for some wealth distribution but not for others. A second result is that a redistribution of wealth may drive the economy from a steady state with strictly positive output to a poverty trap in which output converges asymptotically to zero. These results indicate that differences in the wealth distribution may be responsible for drastic differences in the long-run standard of living. Journal of Economic Literature Classification Numbers: D31, D50, O41.     

GOVERNMENT SPENDING,ENTRY, AND THE CONSUMPTION CROWDING‐IN PUZZLE

This article documents empirically that net firm entry robustly rises after a U.S. government spending expansion. We use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding‐in after positive expenditure shocks. Endogenous‐entry models typically fail to generate the observed joint increase in consumption and entry. Model features that dampen the wealth effect, such as rule‐of‐thumb households or complementarity between labor and consumption in preferences, tend to reduce entry. We show that utility‐ or productivity‐enhancing public spending can reconcile the model with our documented fact and performs well empirically.     

RETIREMENT WEALTH AND LIFETIME EARNINGS*

This article argues that a satisfactory theory of wealth inequality should account not only for the marginal distribution of wealth, but also for the joint distribution of wealth and earnings. The article describes the joint distribution of retirement wealth and lifetime earnings in the Panel Study of Income Dynamics. It then evaluates the ability of a stochastic life‐cycle model to account for key features of this distribution. The life‐cycle model fails to account for three key features of the data. (1) The correlation between lifetime earnings and retirement wealth is too high. (2) The wealth gaps between earnings rich and earnings poor households are too large. (3) Wealth inequality among households with similar lifetime earnings is too small. Models in which households differ in rates of return or time preferences account much better for the joint distribution of retirement wealth and lifetime earnings.     

Wealth Dynamics and the Endogenous Design of Firm Organization

The purpose of this paper is to explore a dynamic interaction between wealth distribution and firm organization design using a model of growth in altruism in which a consideration of moral hazard on the part of agents with risk-averse preferences prevents complete insurance and generates inequality. I show (i) that there exists an ergodic invariant distribution of wealth to which the stochastic process of lineage wealth converges globally, and (ii) that the firm form with direct evaluation of the agent's effort is more likely to be chosen as wealth is distributed more equally.     

The effects of progressive wealth redistribution on an economy's development performance

With the exception of studies concerning the effects of land reform programs on total agricultural output, there has been a lack of studies on how changes in the distribution of wealth may effect an economy's development performance. The objective of this study is to fill this gap and to show that under certain conditions progressive wealth redistribution can lead to an increase in an economy's rate of growth. A model is presented that incorporates portfolio behavior and financial markets into a two-sector input-output model. Model simulations are utilized to show that the major condition under which redistribution is favorable to growth is that the lower wealth group have a smaller marginal propensity to accumulate consumer durables than the upper wealth group.     

Policy Effects in Hyperbolic vs. Exponential Models of Consumption and Retirement

This paper constructs a structural retirement model with hyperbolic preferences and uses it to estimate the effect of several potential Social Security policy changes. Estimated effects of policies are compared using two models, one with hyperbolic preferences and one with standard exponential preferences. Sophisticated hyperbolic discounters may accumulate substantial amounts of wealth for retirement. We find it is frequently difficult to distinguish empirically between models with the two types of preferences on the basis of asset accumulation paths or consumption paths around the period of retirement. Simulations suggest that, despite the much higher initial time preference rate, individuals with hyperbolic preferences may actually value a real annuity more than individuals with exponential preferences who have accumulated roughly equal amounts of assets. This appears to be especially true for individuals with relatively high time preference rates or who have low assets for whatever reason. This affects the tradeoff between current benefits and future benefits on which many of the retirement incentives of the Social Security system rest.Simulations involving increasing the early entitlement age and increasing the delayed retirement credit do not show a great deal of difference whether exponential or hyperbolic preferences are used, but simulations for eliminating the earnings test show a non-trivially greater effect when exponential preferences are used.     

新自由主义、金融危机与资本主义模式的调整——美国模式、日本模式和瑞典模式的比较

20世纪80年代,伴随着新自由主义思潮的兴起,发达资本主义国家的不同市场经济模式集体转向了新自由主义市场经济模式。20世纪90年代,美国模式、日本模式和瑞典模式几乎同时爆发了金融危机。美国模式对新自由主义政策进行了短暂调整后,又重蹈覆辙;日本模式则在新自由主义模式与日本模式之间摇摆不定,其结果导致日本经历了失去的二十年。瑞典模式则在坚持自身模式合理内核的基础上,弱化了新自由主义政策主张,迅速走出危机,走向持续发展。2007年美国次贷危机标志着新自由主义模式的终结,可以预见,无论是美国模式、日本模式还是瑞典模式,都将在坚持自身模式合理内核的基础上,更加注重向经济绩效和社会绩效均衡发展的方向调整。从本质上看,无论哪种资本主义市场经济模式,都无非是资本主义生产关系的一种调节形式而已,它们都无法从根本上克服资本主义基本矛盾带来的经济周期律。     

债务型经济增长:当代发达国家的经济特征

2008年美国金融危机和近年一些发达国家相继发生的主权债务危机,从根本上不同于以往历次危机,展现了当代发达资本主义国家经济的债务化特征,即一方面资本过剩(流动性过剩)推动了金融资本投机性投资,依靠金融创新制造的"财富效应"来刺激虚假的购买力;另一方面,发达国家政府依靠债务来维持其庞大的财政开支。债务型经济增长是不可持续的,终将爆发危机进行强制性调整。     

On the long-run wealth distribution in a simple Ramsey model with heterogeneous households

This paper analyzes the long-run wealth distribution in a Ramsey model where individuals have a common rate of time preference but different intertemporal elasticities of substitution. As a result, it is shown that heterogeneity among households in intertemporal substitution is sufficient for the existence of a non-degenerate long-run wealth distribution. We also investigate the properties of the long-run wealth distribution and the transition of capital and consumption using the phase diagram.     

Bequests, Inter Vivos Transfers, and Wealth Distribution

This paper constructs a heterogeneous agent overlapping generations model with bequests and inter vivos transfers. In the model, households in the same family line behave strategically to determine their consumption, working hours, gifts, and savings. Calibrating the model to the U.S. economy, the paper measures time preference and parental altruism consistent with the economy's capital-output ratio and the size of intergenerational transfers. The model with intergenerational transfers better explains, although not fully, the wealth distribution of the United States. The paper also analyzes the effects of government policy changes on wealth accumulation, distribution, and social welfare. Journal of Economic Literature Classification Numbers: D31, D64, D91, H31.