Wealth
Paper Session
Saturday, Jan. 8, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Stefanie Stantcheva, Harvard University
Saving Effects of a Real-Life Imperfectly Implemented Net Wealth Tax: Evidence from Norwegian Micro Data
Abstract
Countries that implement wealth taxes make many practical compromises regarding relative treatment and approach to valuation of different categories of assets in order to ease assessment and liquidity difficulties with this form of taxation. By relying on Norwegian variation in tax and base rules, we evaluate the effect of taxation on saving and portfolio composition and sensitivity of these effects to the base definition. We also illustrate distributional consequences of such an imperfect implementation of a wealth tax.Where Does Wealth Come From?
Abstract
Much attention has been given to rising wealth inequality in recent decades. However, understanding inequality requires an understanding of how wealth relates to the potential wealth an individual could accumulate and where this wealth comes from. Using administrative data from Norway, we create measures of potential wealth that abstract from differential consumption and spending behavior. We then examine how these measures relate to observed net wealth of individuals at a point in time and the role played by different sources of wealth in the distribution of potential wealth. We find that net wealth is a reasonable proxy for potential wealth, particularly in the tails of the distribution. Importantly, people in different parts of the potential wealth (or actual net wealth) distribution get their wealth from very different sources. Labor income is the most important determinant of wealth, except among the top 1%, where capital income and capital gains on financial assets become important. Inheritances and gifts are not an important determinant of wealth, even at the top of the wealth distribution. Finally, although inheritances are not important, parental wealth does influence child’s wealth; children of wealthy parents accumulate wealth from very different sources than children of less wealthy parents.The Intergenerational Transmission of Housing Wealth
Abstract
A growing literature in Economics documents a substantial intergenerational persistence in wealth. Existing research is primarily based on cross-sectional rank correlations between parent and child wealth with scarce information on the mechanisms through which wealth is transmitted. This paper investigates how plausibly exogenous shocks to wealth are transmitted to children later in life as well as the potential mechanisms behind this transmission. Our focus is on housing wealth shocks because housing wealth is the single most important component of wealth for all but highest-resource households. We use Danish register data on children born between 1984 and 1989 to parents who owned a home at the time of birth and fix each child’s house as the house at birth. Our identification strategy links house-specific variation in prices when children are of different ages (0-5, 6-11, and 12-17) to their housing wealth during their early- to mid-30s. Our models include a rich set of controls that account for the possibility that otherwise wealthier households experience larger home price growth, including municipality-by-year fixed effects, baseline home prices, and parental income, education, and non-housing wealth. The rich data we use also allow us to explore the mechanisms underlying this transmission. We examine how housing price changes during childhood affect educational attainment, the types of degrees individuals earn, occupation, marriage and fertility decisions, labor market earnings, debt, and the accumulation of non-housing and non-retirement wealth in early adulthood. Our results provide new insights into how housing markets facilitate the transmission of wealth across generations, the mechanisms that determine this transmission, and the role of housing wealth in driving the rising wealth inequality across households.Discussant(s)
Laurent Bach
,
ESSEC Business School
Juliana Londoño-Vélez
,
University of California-Los Angeles
Kerwin Charles
,
Yale University
Erik Hurst
,
University of Chicago
JEL Classifications
- G5 - Household Finance