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Macroeconomics and Household Heterogeneity
The goal of this chapter is to study how, and by how much, household income, wealth, and preference heterogeneity amplify and propagate a macroeconomic shock. We focus on the U.S. Great Recession of 2007-2009 and proceed in two steps. First, using data from the Panel Study of Income Dynamics, we document the patterns of household income, consumption and wealth inequality before and during the Great Recession. We then investigate how households in different segments of the wealth distribution were affected by income declines, and how they changed their expenditures differentially during the ...
“Parasite,” COVID-19, and U.S. Wealth Inequality
The movie “Parasite” focuses on two South Korean families on the opposite ends of the wealth spectrum. What insights can it provide about wealth inequality in the U.S.?
Uninsured risk, stagnation, and fiscal policy
Japan is in the midst of a protracted spell of depressed economic activity. Japan's economic stagnation has occurred against a background of rising earnings risk. Occupational stability is falling as routine occupations disappear and implicit lifetime employment guarantees are gradually disappearing. At the same time, earnings in some high-skilled occupations have continued to grow. The resulting polarization in earnings has also been accompanied by an increase in wealth inequality. We develop a framework that relates these observations. In our model, an increase in uninsured earnings risk ...
On the Distribution of the Welfare Losses of Large Recessions
How big are the welfare losses from severe economic downturns, such as the U.S. Great Recession? How are those losses distributed across the population? In this paper we answer these questions using a canonical business cycle model featuring household income and wealth heterogeneity that matches micro data from the Panel Study of Income Dynamics (PSID). We document how these losses are distributed across households and how they are affected by social insurance policies. We find that the welfare cost of losing one?s job in a severe recession ranges from 2% of lifetime consumption for the ...
Use it or Lose it: Efficiency Gains from Wealth Taxation
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who ...
The outlook for the U.S. economy in 2018 and beyond: remarks at the Securities Industry and Financial Markets Association, New York City
Remarks at the Securities Industry and Financial Markets Association, New York City.
Wealth Distribution and Retirement Preparation among Early Savers
This paper develops a new combined-wealth measure by augmenting data on net worth from the Survey of Consumer Finances with estimates of defined benefit (DB) pension and expected Social Security wealth. We use this concept to explore retirement preparation among two groups of households in pre-retirement years (aged 40 through 49 and 50 through 59), and to explore the concentration of wealth. We find evidence of moderate, but rising, shortfalls in retirement preparation. We also show that including DB pension and Social Security wealth results in markedly lower measures of wealth ...
Monetary Policy and Inequality
This Commentary examines the link between monetary policy and income and wealth inequality by reviewing the theoretical channels that have been proposed and examining the empirical evidence on their importance. The analysis suggests that the magnitude of any redistributive consequences of conventional monetary policy seems to be small. Evidence that unconventional monetary policies have led to increases in inequality is still inconclusive.
The Real State of Family Wealth: Will COVID-19 Worsen Racial, Educational and Generational Gaps in the U.S.?
A new quarterly assessment tracks the pandemic’s impact on wealth trends by demographic groups.
Wealth inequality among the Forbes 400 and U.S. households overall
While widening income inequality in the United States has garnered much public and academic attention in recent years, wealth inequality reveals an even starker picture. For instance, in 2010, the top 1 percent of income earners received 19.8 percent of total household income. In the same year, the wealthiest 1 percent held 35.4 percent of total household wealth (Kaplan 2013). Moreover, wealth inequality has increased in recent decades, with most gains concentrated among the richest 20 percent of households (Wolff 2013).