Review of Income and Wealth

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 0034-6586

Issue Number

No. 69-4, December 2023

Latest documents

When income differences hurt or excite: The nonlinear effect of regional inequality on subjective wellbeing
Combining information from the European Union Statistics on Income and Living Conditions and the European Social Survey, we investigate the relationship between subjective well‐being and income inequality using regional inequality indicators and individual data. We assume that inequality aversion and perception of social mobility affect the impact of regional inequality on subjective well‐being in opposite directions. We find evidence of an inverse U‐shaped effect of inequality, where inequality starts to have a positive effect on subjective well‐being that becomes negative with a switch point before the average of the Gini index for the entire sample. The rationale for our nonlinear finding is that Hirschman's tunnel effect (and the positive effect of perceived social mobility) prevails for low levels of inequality, while inequality aversion and negative relative income effects are relatively stronger when inequality is higher. Robustness checks on different sample splits are consistent with the hypothesis of the two drivers.
The Intergenerational Effects of Recessions
Several studies analyze the contemporaneous effects of recessions on individuals and their children. This paper shows that recessions also affect future offspring, not born yet. By linking fathers and offspring from the Panel Study of Income Dynamics, we find that a percentage‐point increase in the national unemployment rate experienced by men between ages 16 and 20 reduces their future offspring's annual wages by 4 percent, occupational prestige by 3 percent, and education by 0.2 years. We then investigate the mechanisms explaining our findings.
Distributional national accounts for the Netherlands and a comparison with 12 other countries
Most inequality studies rely on micro data that do not capture a substantial share of income identified in the national accounts. In the Netherlands, almost one fifth of household disposable income is missed by current inequality statistics. In this paper, we present inequality statistics for the Netherlands that capture all of household income, so‐called distributional national accounts. Compared to the current inequality statistics, the Gini coefficient for disposable income increases substantially from 0.289 to 0.337. Cross‐country comparisons show that such a change between Gini coefficients based on micro‐data versus Gini coefficients based on distributional national accounts does not apply to all countries. The difference between both Gini coefficients varies not only between countries in the size, but also in the sign of the difference.
Issue Information
Underreporting of Top Incomes and Inequality: A Comparison of Correction Methods using Simulations and Linked Survey and Tax Data
Household surveys do not capture incomes at the top of the distribution well. This yields biased inequality measures. We compare the performance of the reweighting and replacing methods to address top incomes underreporting in surveys using information from tax records. The biggest challenge is that the true threshold above which underreporting occurs is unknown. Relying on simulation, we construct a hypothetical true distribution and a “distorted” distribution that mimics an underreporting pattern found in a novel linked data for Uruguay. Our simulations show that if one chooses a threshold that is not close to the true one, corrected inequality measures may be significantly biased. Interestingly, the bias using the replacing method is less sensitive to the choice of threshold. We approach the threshold selection challenge in practice using the Uruguayan linked data. Our findings are analogous to the simulation exercise. These results, however, should not be considered a general assessment of the two methods.
Upper and Lower Bound Estimates of Inequality of Opportunity: A Cross‐National Comparison for Europe
I provide lower and upper bound estimates of inequality of opportunity (IOp) for 32 European countries, between 2005 and 2019. Lower bound estimates use machine learning methods to address sampling variability. Upper bound estimates use longitudinal data to capture all‐time invariant factors. Across all years and countries, lower bound estimates of IOp account from 6 percent to 60 percent of total income inequality, while upper bound estimates account from 20 percent to almost all income inequality. On average, upper bound IOp saw a slight decrease in the aftermath of the Great Recession, recovering and stabilizing at around 80 percent of total inequality in the second half of the 2010s. Lower bound estimates for 2005, 2011, and 2019 show a similar pattern. My findings suggest that lower and upper bound estimates complement each other, corroborating information and compensating each other's weaknesses, highlighting the relevance of a bounded estimate of IOp.
Review of income and wealth report of the editors 2022–2023
An Index Approach to Measuring Product Differentiation: A Hedonic Analysis of Airfares
The main objective of this paper is to introduce an Allen‐type index of differentiation based on cost functions. With this index, we create an economic measure of product differentiation that quantifies differences between products. Applied research has some generally accepted economic measures, for example, the Herfindahl–Hirschman Index for market concentration, or the Gini coefficient for inequality. Product differentiation, however, does not yet have an established measure. Our objective is to fill that gap and introduce a measure that can be used in market‐related applied research such as market power, antitrust, price indexes, or market strategy. To operationalize the index, we introduce the concept of a core product and use cost functions to measure the degree of differentiation from the core product. To demonstrate the use of the index, we study the effect of product differentiation on price formation in the airline industry using an enhanced hedonic model. The model is empirically tested on 103,980 observations of quarterly US domestic airfare data between 2002 and 2016 and shows that product differentiation has a significant effect on both price and mark‐up.
Intergenerational wealth transmission in Great Britain
We document the intergenerational wealth transmission between adult offspring and their parent's using the Wealth and Assets Survey for Great Britain. We estimate an intergenerational wealth elasticity of 0.4 and Rank‐Rank elasticity of 0.3 and find intergenerational wealth transmission for individuals in their 60s is lower than for those currently aged in their 30s and early 40s, though rank based estimates are stable. Our estimation results imply that the intergenerational wealth elasticity is 3.8 percentage points higher when comparing people with those the same age 6 years previously suggesting strong evidence of higher intergenerational wealth persistence in younger age cohorts. Taken together, the findings have important implications for future wealth inequalities and must be addressed.
Subjective Inheritance Expectations and Economic Outcomes
In this paper we investigate whether and to what extent inheritance expectations act as a driver of economic choices. We use survey data that are representative of the Dutch adult population with a specific module on subjective probabilities on receiving an inheritance and its amount in the next 10 years. We analyze whether the expected inheritance acts as a deterrent to saving. Results suggest that individuals perceive the expected inheritances as a potential increase of personal wealth, which leads to a reduction in savings. Expectations also appear to matter for the intentions to bequeath and for intended choices on work versus leisure in the future.