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Working Paper
Consumption in the Great Recession: The Financial Distress Channel
Athreya, Kartik B.; Sanchez, Juan M.; Mather, Ryan; Mustre-del-Rio, Jose (2019-08-29)
During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the ...
Working Paper , Paper 19-13

Working Paper
Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada
Hayashi, Fumiko; Felt, Marie-Hélène; Welte, Angelika; Stavins, Joanna (2020-12-01)
Using data from the United States and Canada, we quantify consumers’ net pecuniary cost of using cash, credit cards, and debit cards for purchases across income cohorts. The net cost includes fees paid to financial institutions, rewards received from credit or debit card issuers, and the merchant cost of accepting payments that is passed on to consumers as higher retail prices. Even though credit cards are more expensive for merchants to accept compared with other payment methods, merchants typically do not differentiate prices at checkout, but instead pass through their costs to all ...
Working Papers , Paper 20-13

Working Paper
Financial Distress and Macroeconomic Risks
Athreya, Kartik B.; Sanchez, Juan M.; Mather, Ryan; Mustre-del-Rio, Jose (2021-10-22)
This paper investigates how, and how much, household financial distress (FD), arising from allowing debts to go unpaid, matters for the aggregate and cross-sectional consumption responses to macroeconomic risk. Through a battery of structural models, we show that FD can affect consumption responses through three channels: (1) as another margin of adjustment to shocks (direct channel); (2) because its persistence implies a significant degree of preference heterogeneity (indirect channel); and (3) because it can exacerbate macroeconomic risks whenever it is more severe in the hardest-hit ...
Working Papers , Paper 2019-025

Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Agarwal, Sumit; Scholnick, Barry; Mikhed, Vyacheslav (2016-02-11)
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Papers , Paper 16-4

Working Paper
The Piketty Transition
Carroll, Daniel R.; Young, Eric R. (2014-12-03)
We study the effects on inequality of a "Piketty transition" to zero growth. In a model with a worker-capitalist dichotomy, we show first that the relationship between inequality (measured as a ratio of incomes for the two types) and growth is complicated; zero growth can raise or lower inequality, depending on parameters. Extending our model to include idiosyncratic wage risk we show that growth has quantitatively negligible effects on inequality, and the effect is negative. Finally, following Piketty?s thought experiment, we study how the transition might occur without declining returns; ...
Working Papers (Old Series) , Paper 1432

Working Paper
The COVID-19 Pandemic and Family Economic Well-being: Evidence from the Survey of Consumer Finances
Goodman, Sarena; Li, Gina; Moore, Kevin B.; Volz, Alice Henriques (2024-08-23)
The COVID-19 pandemic caused severe disruptions to the U.S. labor market and economic activity. We establish connections between family experiences of the pandemic, their income under normal conditions, and their later economic well-being using the 2022 Survey of Consumer Finances. By their interview, one-third of families experienced net employment declines, one-third had teleworked, and one-fifth had significant COVID-19-related health events. These experiences strongly reflected families’ positions in the income distribution, with lower-income families bearing the brunt. They also ...
Finance and Economics Discussion Series , Paper 2024-068

Journal Article
Risk Aversion at the Country Level
Hernandez-Murillo, Ruben; Gandelman, Nestor (2015)
This article estimates the coefficient of relative risk aversion for 75 countries using data on self-reports of personal well-being from the 2006 Gallup World Poll. The analysis suggests that the coefficient of relative risk aversion varies closely around 1, which corresponds to a logarithmic utility function. The authors conclude that their results support the use of the log utility function in numerical simulations of economic models.
Review , Volume 97 , Issue 1 , Pages 53-66

Working Paper
Reparations and Persistent Racial Wealth Gaps
Karabarbounis, Loukas; Boerma, Job (2021-02-19)
Reparations is a policy proposal aiming to address the wealth gap between Black and White households. We provide a first formal analysis of the economics of reparations using a long-run model of heterogeneous dynasties with an occupational choice and bequests. Our innovation is to introduce endogenous dispersion of beliefs about risky returns, reflecting differences in dynasties' experiences with entrepreneurship over time. Feeding the exclusion of Black dynasties from labor and capital markets as driving force, the model quantitatively reproduces current and historical racial gaps in wealth, ...
Working Papers , Paper 776

Working Paper
Earnings Business Cycles: The Covid Recession, Recovery, and Policy Response
Splinter, David; Larrimore, Jeff; Mortenson, Jacob (2023-01-06)
Using a panel of tax data, we follow the earnings of individuals over business cycles. Compared to prior recessions, the Covid policy response and recovery were far more progressive. Among workers starting in the bottom quintile, median real earnings including fiscal relief increased 66 percent in 2020 and earnings increases offset relief decreases in the 2021 recovery. After the prior two recessions, this measure had decreased by 24 percent. Among those starting in the top quintile, median and average real earnings were approximately unchanged. This difference from prior recessions is ...
Finance and Economics Discussion Series , Paper 2023-004

Working Paper
Granular Income Inequality and Mobility using IDDA: Exploring Patterns across Race and Ethnicity
Kondo, Illenin O.; Rinz, Kevin; Gubbay, Natalie; Hawkins, Brandon; Voorheis, John; Wozniak, Abigail (2024-07-19)
We explore the evolution of income inequality and mobility in the U.S. for a large number of subnational groups defined by race and ethnicity, using granular statistics describing income distributions, income mobility, and conditional income growth derived from the universe of tax filers and W-2 recipients that we observe over a two-decade period (1998–2019). We find that income inequality and income growth patterns identified from administrative tax records differ in important ways from those that one might identify in public survey sources. The full set of statistics that we construct is ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 095

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