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Working Paper
The Lost Ones: The Opportunities and Outcomes of Non-College-Educated Americans Born in the 1960s
White, non-college-educated Americans born in the 1960s face shorter life expectancies, higher medical expenses, and lower wages per unit of human capital compared with those born in the 1940s, and men's wages declined more than women's. After documenting these changes, we use a life-cycle model of couples and singles to evaluate their effects. The drop in wages depressed the labor supply of men and increased that of women, especially in married couples. Their shorter life expectancy reduced their retirement savings but the increase in out-of-pocket medical expenses increased them by more. ...
Report
Wealth inequality and intergenerational links
Previous work has had difficulty generating household saving behavior that makes the distribution of wealth much more concentrated than that of labor earnings, and that makes the richest households hold onto large amounts of wealth, even during very old age. I construct a quantitative, general equilibrium, overlapping-generations model in which parents and children are linked by accidental and voluntary bequests and by earnings ability. I show that voluntary bequests can explain the emergence of large estates, while accidental bequests alone cannot, and that adding earnings persistence within ...
Working Paper
Wealth inequality, intergenerational links and estate taxation
Empirical studies have shown that, for many countries, the distribution of wealth is much more concentrated than the one of labor earnings. We do not have yet a satisfactory model that can generate enough concentration in wealth from the one for earnings. I construct a computable general equilibrium model with overlapping generations in which parents and children are linked by bequests and earnings within families. I show that bequests are important to explain the emergence of large estates that characterize the top of the wealth distribution and that the introduction of a bequest motive ...
Working Paper
Wealth inequality: data and models
In the United States wealth is highly concentrated and very unequally distributed: the richest 1% hold one third of the total wealth in the economy. Understanding the determinants of wealth inequality is a challenge for many economic models. We summarize some key facts about the wealth distribution and what economic models have been able to explain so far.
Working Paper
Medicaid insurance in old age
Medicaid was primarily designed to protect and insure the poor against medical shocks. Yet, poorer people tend to live shorter lifespans and incur lower medical expenses before death than richer people. Taking these and other important dimensions of heterogeneity into account, and carefully modeling key institutional aspects, we estimate a structural model of savings and endogenous medical expenses to assess the costs and benefits of Medicaid for single retirees. ; We show that even higher-income retirees benefit from Medicaid, if they live long enough for their resources to be depleted by ...
Working Paper
Differential mortality, uncertain medical expenses, and the saving of elderly singles
People have heterogenous life expectancies: women live longer than men, rich people live longer than poor people, and healthy people live longer than sick people. People are also subject to heterogenous out-of-pocket medical expense risk. We show that all of these dimensions of heterogeneity are large for the elderly. Can these factors explain their lack of asset decumulation even at very advanced ages and the high saving rate of the income-rich elderly? We answer this question in two steps. We first estimate the uncertainty about mortality and outof pocket medical expenditures as functions ...
Working Paper
Why do the elderly save? the role of medical expenses
This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the ...
Working Paper
Life expectancy and old age savings
Rich people, women, and healthy people live longer. We document that this heterogeneity in life expectancy is large. We use an estimated structural model to assess the impact of life expectancy variation on the elderly?s savings. We find that the differences in life expectancy related to observable factors such as health, gender, and income have large effects on savings, and that these factors contribute by similar amounts. We also show that the risk of outliving one?s expected lifespan has a large effect on the elderly?s saving behavior.
Working Paper
Credit crunches and credit allocation in a model of entrepreneurship
We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business in this set-up, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.
Working Paper
Taxation, entrepreneurship, and wealth
Entrepreneurship is a key determinant of investment, saving, and wealth inequality. We study the aggregate and distributional effects of several tax reforms in a model that recognizes this key role and that matches the large wealth inequality observed in the U.S. data. The aggregate effects of tax reforms can be particularly large when they affect small and medium-sized businesses, which face the most severe financial constraints, rather than big businesses. The consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system ...