We document a strong association between patience and wealth inequality by linking experimental data from a large preference-elicitation experiment with administrative wealth records. Furthermore, by using historical survey measures of patience and detailed administrative data of wealth determinants, we establish a causal relationship from patience to wealth inequality, which most likely runs through differences in savings behavior in accordance with theory.
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House prices and spending move together but little is known about the underlying mechanism linking them. We design a test to discriminate between the housing wealth effect hypothesis and the collateral effect hypothesis. The wealth effect hypothesis says that home owners consider home value changes as windfalls and the collateral effect says that a home value increase generate additional collateral which can be borrowed against. We find that home owners who are close to their collateral borrowing constraint take out new mortgage loans and increase spending when home values go up. The effect is magnified among fixed rate mortgage borrowers who have an incentive to refinance their loans to lock in a lower market rate. These results show that the collateral effect is important for explaining the link between house prices and spending. They also emphasize the key role of the mortgage market in transforming house price increases into spending and suggest that monetary policy can amplify the link between house prices and consumer spending by affecting interest rates on mortgage loans.
We show that inequalities at birth of one generation persist into inequality among the offspring in the next generation. Differences in birth weight of parents are strongly associated with differences in school performance of their children. This is also the case when controlling for the children’s own birth weight and when controlling for the family background of the parents.
A new study by Claus Thustrup Kreiner, together with Daniel Reck from London School of Economics and Peer Ebbesen Skov from Auckland University of Technology, measures the impact of youth minimum wages on youth employment. By exploiting a large discontinuity in Danish minimum wage rules at age 18 and access to payroll records at the monthly frequency for the Danish population, the authors are able to provide precise estimates of the employment effects. The relevant policy elasticity for evaluating the effect on youth employment of changes in their minimum wage is in the range 0.6-1.1.
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Financial trouble has big consequences for individual welfare and for the design of debt relief policies and bankrupcy laws. However, little is known about why some people end up in financial trouble while others do not. The new study by Kreiner, Leth- Petersen and Willerslev-Olsen show that individuals with parents who are in financial trouble are four times more likely to end up in financial trouble themselves compared to individuals with parents not in financial trouble. This is driven by financial behavior which is shared within the family, such that children tend to inherit the financial behavior of their parents.
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Reducing gender inequality has become a central motivation for labor market and child-care policy reforms. Recently, for example, the European Parliament proposed to impose on member countries that each parent must have the right to two months of non-transferable paid parental leave. One of the main arguments for this EU-wide legislation is to lower gender inequality by reducing the flexibility of couples to allocate paid parental leave within the households.
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Most economists are well aware that the models based on perfectly rational and optimizing individuals, which we teach our students, are only approximations of real life behavior. The key questions are what the size and conse-quences are of the differences between model predictions and real life behavior. In the case of the effect of taxation on labor supply, the emergence of big data has shown that there is profound differences between the predictions from our standard models and observed labor market behavior. Researchers have sought to explain these discrep-ancies by the presence of optimization frictions: i.e. individuals fail to optimize correctly when the stakes are low due to various behavioral factors such as inattention, adjustment costs etc. However, optimization frictions have the potential to explain nearly everything and it is therefore critical to investigate settings in which the presences of optimization frictions could potentially be falsified.
New research results, published by CEBI researchers in Proceedings of the National Academy of Sciences (PNAS), challenge previous findings of huge differences in life expectancy between high and low-income individuals. In real life people don´t necessarily stay poor or stay rich, as assumed in previous research. Claus Thustrup Kreiner, Torben Heien Nielsen and Benjamin Ly Serena develop new a method to take this mobility between income-classes into account providing a more realistic way to calculate life expectancy for people from different walks of society. Their results show that in reality the difference between the lifespan of a rich and a poor person is really not that big.
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Even in famously egalitarian Denmark, there are people who enter adulthood with substantial wealth amassed from transfers throughout childhood. What’s more, this childhood wealth is a very strong predictor of wealth in adulthood nearly three decades later. These are among the findings of research by Simon Halphen Boserup, Wojciech Kopczuk and Claus Thustrup Kreiner, published in the July 2018 Economic Journal. Their study also shows that there are important differences in Denmark even among families with the same level of wealth. Children from families that promote wealth accumulation early on are most likely to end up at the top of the wealth distribution in adulthood.
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Over the past decades, we have witnessed a substantial increase in the focus on income inequality both among academics and in the public in general. In particular, the focus has been on the so-called top one percent income share, which measured the share of total income in the economy that goes to the one percent of the population with the highest incomes. For people, who have followed the debate on inequality in Scandinavia, this particular focus might appear narrow, and it is quite natural to ask, why should we focus on top income shares, when we have other standard inequality measures such as the Gini coefficient that captures changes in the entire income distribution?
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How is it possible to stimulate the economy when traditional monetary and fiscal policy instruments are exhausted? Using an unprecedented policy tool the Danish government allowed people in 2009 to prematurely withdraw pension funds that were previously collected into individual accounts through a government mandate, thereby letting people spend their own money while leaving the government budget unaffected. Such a policy will have significant effects on spending if people are liquidity constrained. Evidence from a new study by Kreiner, Lassen and Leth-Petersen confirms this conjecture.
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We often hear about the power of personality, and how some traits are beneficial for our careers while others are more harmful. For example, we know that being more conscientious (hard-working, driven, reliable, and organized) is associated with better job performance, and that being nice (more agreeable) does not pay off in wages. But it is less clear when these personality traits matter most for our careers (are they more important earlier on, or in the middle?) and who benefits most from them.
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Who evades taxes in developed economies? The question is fascinating in its own right and matters a great deal for the study of inequality because scholars typically rely on tax records for distributional information about income and wealth. If tax evasion is equally prevalent among the rich and the poor, it will not affect measured inequality. If the rich dodge taxes more than others, tax records will underestimate inequality.
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Despite considerable gender convergence over time, substantial gender inequality persists in all countries. Using Danish administrative data from 1980-2013 and an event study approach, we show that most of the remaining gender inequality in earnings is due to children. The arrival of children creates a gender gap in earnings of around 20 percent in the long run, driven in roughly equal proportions by labor force participation, hours of work, and wage rates. Based on these estimates, we show that the fraction of gender inequality caused by child penalties has increased dramatically over time, from about 40 percent in 1980 to about 80 percent in 2013.
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Was the most recent financial crisis transmitted to the household sector through a reduction in the credit supply? The tightening of credit by banks in financial distress is one among several possible explanations why households slashed consumption in the aftermath of the financial crisis.
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The focus of this study is the extreme shock of the death of a spouse. We show that widows, who tend to be secondary earners and face large income losses when their husbands die, increase their labor force participation by more than 11%. In contrast, widowers, who tend to be primary earners and need to financially support one fewer person when losing their wives, decrease their labor supply. Importantly, female and male survivors exhibit similar sensitivity to comparable changes in household income.
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Our answer to this question is both “yes” and “no”: To understand how bequests might affect different measures of inequality, let us consider an example where everyone receives a bequest proportional to their wealth. In that case, the variance of the wealth distribution increases, while wealth shares remain constant. Thus, absolute inequality increases and relative inequality is unchanged.
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