Effects of monetary and government spending policy on economic inequality

Using detailed micro-level income and expenditure data, we study the effects of monetary and government spending policy shocks on income and expenditure inequality in the US from 1990 to 2018. We find that expansionary monetary and government spending policy shocks systematically decrease income, disposable income and expenditure inequality. There is evidence of time variation on the effects and monetary policy and transfer payment shocks. Various impulse responses suggest that the impacts of the policy shocks increase during and after the Great Recession. The responses of income and expenditures of households at different percentiles suggest that expansionary monetary and government spending policy have a larger positive impact on households with low income and expenditures relative to those at the top of the distribution. We do not find evidence of the significant impact of Quantitative Easing policies on income inequality, however, expenditure inequality appear to increase due to the policies.     

CREDIT,HOUSING COLLATERAL,AND CONSUMPTION: EVIDENCE FROM JAPAN,THE U.K., AND THE U.S.

The consumption behavior of U.K., U.S., and Japanese households is examined and compared using a modern Ando‐Modigliani style consumption function. The models incorporate income growth expectations, income uncertainty, housing collateral, and other credit effects. These models therefore capture important parts of the financial accelerator. The evidence is that credit availability for U.K. and U.S., but not Japanese, households has undergone large shifts since 1980. The average consumption‐to‐income ratio rose in the U.K. and U.S. as mortgage down‐payment constraints eased and as the collateral role of housing wealth was enhanced by financial innovations, such as home equity loans. The estimated housing collateral effect is similar in the U.S. and U.K. In Japan, land prices (which proxy house prices) continue to negatively impact consumer spending. There are negative real interest rate effects on consumption in the U.K. and U.S. and positive effects in Japan. Overall, this implies important differences in the transmission of monetary and credit shocks in Japan versus the U.S., U.K., and other credit‐liberalized economies.     

The effects of fiscal policy on consumption in recessions and expansions

This paper explores in a yearly panel of nineteen OECD countries from 1970–2002 the effects of fiscal policy changes on private consumption in recessions and expansions. In the presence of binding liquidity constraints on households, fiscal policy is more effective in boosting private consumption in recessions than in expansions. The effect is more pronounced in countries characterized by a less developed consumer credit market. This happens because the fraction of individuals that face binding liquidity constraints in a recession will consume the extra income generated following an unanticipated tax cut or government spending increase.     

The loan structure and housing tenure decisions in an equilibrium model of mortgage choice

The objective of this paper is to understand how loan structure affects (i) the borrower's selection of a mortgage contract and (ii) the aggregate economy. We develop a quantitative equilibrium theory of mortgage choice where households can choose from a menu of long-term (nominal) mortgage loans. The model accounts for observed patterns in housing consumption, ownership, and portfolio allocations. We find that the loan structure is a quantitatively significant factor in a household's housing finance decision. The model suggests that the mortgage structure preferred by a household is dependent on age and income and that loan products with low initial payments offer an alternative to mortgages with no downpayment. These effects are more important when inflation is low. The presence of inflation reduces the real value of the mortgage payment and the outstanding loan over time reducing mobility. Changes in the structure of mortgages have implications for risk sharing.     

How do consumers respond to house price declines?

Movements in house prices and consumer spending are closely correlated in many developed nations. Much debate exists on whether this relationship is causal arising from either wealth effects or via borrowing constraints. This paper uses a unique survey question on consumer responses to house price falls to explain the relationship between house price movements and consumer spending among households in the United Kingdom. 30% of households report they would cut back consumption as a direct response to house price falls. Households who reported they were borrowing constrained were much more likely to report they would cut consumption.     

Deleveraging in a Highly Indebted Property Market: Who does it and are there Implications for Household Consumption?

A distinguishing feature of the period preceding the 2007/2008 financial crisis was the sizeable increase in private sector debt observed across many countries. A key component of household liabilities is mortgage debt and with many countries experiencing persistent increases in house prices from the mid‐1990s, a marked increase in this aspect of household leverage was observed. While aggregate statistics across countries confirm reductions in personal debt levels in recent years, relatively few sources of micro data are available to examine the nature of the deleveraging process at the household level. In this paper, using a unique dataset, we examine deleveraging amongst a representative sample of mortgaged Irish households. We identify the characteristics of households engaged in deleveraging and find that it is those households who can afford to deleverage who do. Furthermore we find some tentative evidence to suggest that the decision to deleverage has negative implications for household consumption.     

Dynamic asset allocation and consumption under inflation inequality: The impacts of inflation experiences and expectations

Differences in spending patterns and in price increases across goods and services lead to the unequal inflation experiences of households (called inflation inequality). These differences then cause disagreements in inflation expectations and eventually have a significant effect on households’ asset allocation and consumption decisions. The asset allocation model in this paper explains how inflation experiences affect household investment and consumption through corresponding inflation expectations, which are characterized by long-term expected inflation, the impact coefficient of the expected inflation and the correlation between expected inflation and the risky return. Using China's economic data, the empirical results show that significant differences in inflation expectation arise from income gap, regional inequality, different inflation measures and economic sector spending differences. Using the estimated coefficients, the calibration results have policy implications that households need more financing channels to resist inflation, especially in rural areas and in the raw material sector.     

Risk coping and starvation in rural China

We use a 3-year panel from two poor provinces in Southern China to examine the nature of risks to which rural households are exposed and their ability to insure calorie consumption and spending of total consumption against idiosyncratic shocks to their income. We find that idiosyncratic risks are indeed the main source of income variation in the sample, consumption is better insured than total spending. Unlike total spending where full insurance is rejected in most cases, calorie intake is completely insured for both land-rich and land-poor households in both provinces. Access to even modest amounts of land significantly enhances households’ ability to guard against total spending. Land-rich households are much better insured against total spending than land-poor households. The results are robust across model specifications although Generalized Method of Moments (GMM) estimations increase the magnitude of difference in total spending between the land-rich and the land-poor. Policies targeting poverty reduction and improving land use rights and land access to the poor could potentially improve the overall risk sharing ability of the rural poor.     

Tax treatment of owner occupied housing and wealth inequality

We construct a quantitative general equilibrium lifecycle model with housing tenure decisions to investigate the degree to which wealth inequality in the United States is affected by the preferential tax treatment of home-ownership. Favorable tax treatment of owner occupied housing in the form of home mortgage interest and property tax deductibility, and the untaxed nature of imputed rents, provides a financial incentive for home-ownership over renting as well as an incentive to “over-consume” housing since houses are not fungible. Since the favorable tax treatment of housing disproportionately creates tax savings for the upper quantiles of the income distribution, we quantify how it contributes to the heavily right skewed distribution of wealth in the United States using data from the Survey of Consumer Finances. We consider a revenue-neutral government response to the counter factual experiments of removing the current tax structure on housing. Our quantitative analysis shows that, in terms of distributional effects, removing all of the preferential tax treatments results in an aggregate increase in welfare. However, we do not find any reduction in inequality. We also find that while some re-allocation toward financial assets occurs, households primarily increase their consumption when imputed housing rents are taxed and the property tax deduction is removed. Thus housing tax policy may be effective at encouraging more overall saving through housing assets.     

Consumer Expenditures and Home Production at Retirement – New Evidence from Germany

Abstract. This paper investigates consumer expenditures of German households pre‐ and post‐retirement. The widely observed distinct drop in spending upon retirement entry poses an empirical puzzle since life cycle theory predicts smoothing of the marginal utility of consumption over time. As one explanation, I explore the role of home production as a substitute for consumer expenses. Taking a combined look at consumer expenditures and time use pre‐ and post‐retirement, I find a significant drop of about 17% of pre‐retirement expenses at retirement which coincides with an increase in time spent on home production of an additional 89 minutes per day, accounting for 21% of average home production.     

基于广义虚拟经济视角下的中国居民消费与房价关系研究

根据居民消费理论,一般而言财富增加会促进消费,国外大量经验研究已证实了房价对消费存在正向的作用。但对于中国而言,房价上涨(财富增加)似乎并没有带动消费的增加?这是什么原因呢?我们认为房价上涨不仅有财富效应,也有与之相对应的替代效应(或称为挤出效应),这是因为短期内房价上涨使得人们购房支出增加而挤出日常消费。另一方面,基于广义虚拟经济视角的消费者心理分析也能更好地解释这一现象。本文利用1999-2010年我国的省际面板数据进行估计后发现,在我国,房价上涨会对消费的变动产生显著的负影响。对此,本文认为,这主要是由于替代效应造成的,同时中国以家庭为观念的社会结构也使得人们宁愿挤出日常消费也要承受"房奴"的生活。     

A quantitative analysis of Turkish Private Education Reform

A recent education policy Turkish government is wishing to undertake is to shut down all private supplementary education centers (SECs) unless SECs manage to convert into a private school. With this policy, the government is willing to increase equality of opportunity among students. We show quantitatively that the policy, in fact, leads to a decrease in equality of opportunity since SECs are given the option to convert into private schools. We use a political economy model of education at which households, heterogeneous with respect to exogenously set income, choose among a continuum of private schools differentiated by tuition and a public school. Households choosing the public school can privately supplement their child's education spending in any amount. Public school is free of charge, and its spending is financed by income tax revenue collected from all households. Income tax rate is determined by majority voting. Achievement of a child depends only on educational spending. We calibrate the model's parameters by matching certain targets from 2013 Turkish data. We then exogenously restrict the supplemental education spending to zero in a counterfactual experiment. We find that variance of achievement (or inequality of opportunity) increases by 23.51% and mean achievement decreases by 1.74%.     

个人住房贷款行为与房贷调控的有效性分析

本文利用成都市房地产交易的微观数据(2004—2006),实证检验了我国房地产信贷政策的变化对微观个体住房贷款决策行为的影响效果。我们发现,地方购房者的贷款决策对中央利率调控有明显反应。实证结果显示:当长期贷款利率升幅较短期贷款利率升幅高0.1百分点时,贷款者选择短期贷款的概率增加8.4个百分点;而且利用商业住房贷款利率和公积金贷款利率变动差异的"自然实验",我们有效控制了可能由宏观政策内生性产生的计量问题,从微观角度为长、短期利率政策的有效性提供了更可靠的实证检验。此外,我们还发现首付比例政策并没有得到地方银行的严格实施。因此,文章建议政府进一步重视利率政策对房地产市场的调整,而包括首付比例等相关政策的实施需加强对地方执行部门监管的力度。     

Consumer response to child tax credit

This article uses micro-level data from the Consumer Expenditure Survey (CEX) to study consumers?? spending responses to the child tax credit. The article provides one test of the permanent-income hypothesis (PIH) that infers that temporary changes in income have little effect on consumer spending, at the initiation of the child tax credit in 1997, and a second PIH test when the credit was increased in 2003. The evidence supports the PIH in both 1997 and 2003, even using three different proxies for liquidity-constrained households. Separate from any PIH implications, our findings suggest the child tax credit did not provide a short-term consumption stimulus in either of the time periods studied. Our results therefore cast some doubt on whether this type of tax credit should be considered sound fiscal policy.     

Household’s optimal mortgage and unsecured loan default decision

How do households make optimal borrowing and default decisions when they have the option to borrow in multiple ways? In this paper, I analyze households’ optimal mortgage and unsecured loan borrowing and default decisions in the context of the recent recession. I model households as able to default on mortgage debt to walk away from capital losses, at the price of foreclosure. However, a household can also default on unsecured debt to maintain its home, in exchange for a longer exclusion from credit markets following default. Depending on the costs of each alternative, financially constrained households exhibit heterogeneity in optimal default decisions.Next, I analyze how mortgage loan modification policies, after a sudden drop in house prices, affect household choices in the mortgage and unsecured loan markets. The quantitative exercise shows that the government-driven mortgage modification program, initiated in 2009, reduces the mortgage default rate by 0.27% points. However, this increases the unsecured loan charge-off rate by 0.66% points.     

Health insurance and consumption: Evidence from China’s New Cooperative Medical Scheme

We exploit a quasi-natural experiment arising from the introduction of a health insurance program in rural China to examine how the insurance coverage affects household consumption. Results show that, on average, the health insurance coverage increases nonmedical-related consumption by more than 5%. This insurance effect is observed even in households with no out-of-pocket medical spending. In addition, the insurance effect is stronger in households with worse self-reported health status. These results are consistent with the precautionary savings argument. The insurance effect also varies by household experience with the program. In particular, the effect is significant only in villages where some households have actually obtained reimbursement from the insurance program. The program within these villages stimulates less consumption among new participants than among households that have participated in the program for more than a year.     

Is increased agricultural protection beneficial for South Africa?

Using a top down computable general equilibrium microsimulation model of South Africa, this paper explores the impact on household well being of an increase in agricultural protection. This issue is of broader relevance to developing countries that may be contemplating the use of World Trade Organisation permissible trade barriers so as to achieve a domestic policy objective. The model predicts that gross domestic product would be unaffected while real private consumption falls. The real exchange rate appreciates while unemployment levels are unaffected. Food, other manufactures, trade and hotels are the clear losers. All other industries experience small positive gains or no impact on their output. The impact on households depends on their factor endowments and their consumption patterns. The impacts on poverty reduction are very small. Poverty indicators increase more in urban areas than in rural areas. Poverty increases slightly more among Asian households, followed by White and then Coloured households. African households experience small declines in poverty.     

Inequality and Saving: Further Evidence from Integrated Economies

Renewed attention to inequality and saving has arisen owing to their pronounced implications for global imbalances and financial crises. We show that the relationship between saving and inequality is negative if savers' funds are borrowed by spending households for consumption as in the USA, but positive if saving is allocated through financial systems to investing firms for production as in China. This theoretical result is largely consistent with empirical evidence found from these two increasingly integrated economies and other related countries by estimating panel‐data models. The policy implication is that inequality must be reduced in order to increase saving in the USA and other Organisation for Economic Co‐operation and Development (OECD) countries and to boost consumption in China and other parts of emerging Asia.     

Fiscal policy reforms in general equilibrium: The case of Greece

This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest that, if the goal of fiscal policy is to stimulate the economy and increase welfare by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. While higher public investment spending is good for the economy, it is lower public consumption spending that is found to be expansionary. The results also suggest that both tax- and expenditure-based debt consolidation policies lead to worse economic activity in the short run, but they have strong beneficial effects in the medium and long run when the consolidation period finishes.     

After the great recession : financial sophistication and housing leverage

US households face various choices in saving for retirement, with one of the most common decisions related to maintaining or paying off a mortgage. Using the 2010 and 2013 Survey of Consumer Finances, this study investigates the relationship between financial sophistication and mortgage decisions among middle-age households. A Heckman two-stage selection model is employed to investigate two separate decisions: mortgage holding and loan-to-value (LTV) ratios among mortgage holders. Results indicate that financial sophistication is positively associated with carrying a mortgage and higher LTV ratios. These results imply that financially sophisticated households may be using leverage to increase asset returns.