This study measures spending power inequality within age cohorts and estimates fiscal progressivity via lifetime net tax rates. We find, first, that inequality in income and especially wealth ...dramatically overstates inequality in spending power. Second, inequality in current spending power differs from that in lifetime spending power because of credit constraints, in-kind government benefits, and other factors. Third, the US fiscal system is highly progressive once cohorts are old enough to have highly dispersed human wealth. Fourth, households’ rankings based on current income can differ substantially from their rankings based on lifetime resources. Fifth, current-year net tax rates substantially understate fiscal progressivity.
Banks as Potentially Crooked Secret Keepers JACKSON, TIMOTHY; KOTLIKOFF, LAURENCE J.
Journal of money, credit and banking,
October 2021, 2021-10-00, 20211001, Letnik:
53, Številka:
7
Journal Article
Recenzirano
Bank failures are generally liquidity as well as solvency events. Whether it is households running on banks or banks running on banks, defunding episodes are full of drama. This theater has, ...arguably, lured economists into placing liquidity at the epicenter of financial collapse and liquidity provision as opposed to improved intermediation as the rationale for banks. But loss of liquidity describes how banks fail . Bad news about banks explains why they fail. This paper models banks as arising from asymmetric information. Banks have superior knowledge of investment opportunities. But bankers, or at least a subset, also know how to steal. Hence, we model banking crises as triggered by news that the degree (share) of banking malfeasance is likely to be particularly high. The malfeasance share follows a Markov process. When this period's share is high, agents rationally raise their probability that next period's share will be high as well. Whether or not this proves true, agents invest less in banks, reducing intermediation and output. Worse, bad bankers can infect good bankers. When bad bankers are thought to abound, good bankers have less incentive to secure a high return on their investment. Deposit insurance prevents defunding runs and stabilizes the economy. But it sustains bad banking, lowering welfare. Private monitoring helps, but is no panacea. It partially limits banking malfeasance. But it does so inefficiently as households needlessly replicate each other's costly information acquisition. Moreover, if private audits become public, private monitoring breaks down due to free‐riding. Redistribution between generations that do and do not confront the highest share of banking malfeasance does not relieve the problem. What does improve matters is government real‐time disclosure of banking malfeasance. This mitigates, if not eliminates, the asymmetric information problem leading to potentially large gains in both nonstolen output and welfare.
The United States is bankrupt, flat broke. Thanks to accounting that would make Enron blush, America's insolvency goes far beyond what our leaders are disclosing. The United States is a fiscal basket ...case, in worse shape than the notoriously bailed-out countries of Greece, Ireland, and others. How did this happen? InThe Clash of Generations, experts Laurence Kotlikoff and Scott Burns document our six-decade, off-balance-sheet, unsustainable financing scheme. They explain how we have balanced our longer lives on the backs of our (relatively few) children. At the same time, we've been on a consumption spree, saving and investing less than nothing. And that's not to mention the evisceration of the middle class and a financial system that has proven it can't be trusted. Kotlikoff and Burns outline grassroots strategies for saving ourselves--and especially our children--from what could be a truly catastrophic financial collapse. Kotlikoff and Burns sounded the alarm in their widely acclaimedThe Coming Generational Storm, but politicians didn't listen. Now the need for action is even more urgent. It's up to us to demand radical reform of our tax system, our healthcare system, and our Social Security system, and to insist on better paths to investment return than those provided by Wall Street (mis)managers. Kotlikoff and Burns's "Purple Plans" (so called because they will appeal to both Republicans and Democrats) have been endorsed by a who's who of economists and offer a new way forward; and their revolutionary investment strategy for individuals replaces the idea of financial capital with "life decision capital." Of course, we won't be doing all this just for ourselves. We need to fix America's fiscal mess before our kids inherit it.https://www.youtube.com/watch?v=IMKw76lBn0k&feature=youtube_gdata_player
We simulate a 10‐period overlapping generations model with aggregate shocks to price safe and risky government obligations using consumption‐asset pricing. Agents cannot trade with future generations ...to hedge the model's productivity and depreciation shocks, and can only invest in one‐period bonds and risky capital. We find that the pricing of short‐ and long‐dated riskless obligations is anchored to the prevailing risk‐free return. The prices of obligations whose values are proportional to the prevailing wage are essentially identical to those of safe obligations, notwithstanding large macro shocks. On the contrary, government obligations in the form of options entail significant risk adjustment.
Americans are notoriously bad savers. Large numbers are reaching old age too poor to finance retirements that could last longer than they worked. This study uses the 2018 American Community Survey to ...impute retirement ages for 2019 Survey of Consumer Finances (SCF) respondents. Next, we run the SCF respondents through the Fiscal Analyzer (TFA) to measure the size and distribution of forgone lifetime Social Security benefits. TFA is a life-cycle, consumption-smoothing research tool that incorporates Social Security and all other major federal and state tax and benefit policies. The program can optimize lifetime Social Security choices. We find that virtually all American workers age 45–62 should wait beyond age 65 to collect. More than 90% should wait till age 70. Only 10.2% appear to do so. The median loss for this age group in the present value of household lifetime discretionary spending is $182,370. Optimizing would produce a 10.4% increase in typical workers’ lifetime spending. For one in four, the lifetime spending gain exceeds 17%. For one in 10, the gain exceeds 26%. Among the poorest fifth of 45- to 62-year-olds, the median lifetime spending increase is 15.9%, with one in four gaining more than 27.4%.
This paper uses PSID data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism. Specifically, the paper tests whether an increase by one ...dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child's income results in the parents' increasing their transfer to the child by one dollar. This restriction on parental and child transfer‐income derivatives is derived for the standard altruism model augmented to include uncertainty and liquidity constraints. These additional elements pin down the timing of inter vivos transfers. The method used to estimate income‐transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism. The findings strongly reject the altruism hypothesis. Redistributing one dollar from a recipient child to donor parents leads to less than a 13‐cent increase in the parents' transfer to the child, far less than the one‐dollar increase implied by altruism.
There are many alleged culprits for the bank runs of 2008 and their devastating economic fallout. But proprietary information and leverage top our list. Claims of proprietary information forced ...financial markets to operate on trust, while providing the perfect breeding ground for fraud. And leverage permitted creditors to run at the first whiff of fraud, leveling one financial giant after another. Limited Purpose Banking (LPB), presented here, is a financial reform that sharply curtails proprietary information and eliminates leverage and, thus, the possibility of financial collapse. LPB's adoption is supported by our simple model showing how fraud can destroy finance. PUBLICATION ABSTRACT
This paper uses a new, large-scale, dynamic life-cycle simulation model to compare the welfare and macroeconomic effects of transitions to five fundamental alternatives to the U.S. federal income ...tax, including a proportional consumption tax and a flat tax. The model incorporates intragenerational heterogeneity and a detailed specification of alternative tax systems. Simulation results project significant long-run increases in output for some reforms. For other reforms, namely those that seek to insulate the poor and initial older generations from adverse welfare changes, long-run output gains are modest.
Some discussions of physician specialty choice imply that indebted medical students avoid choosing primary care because education debt repayment seems economically unfeasible. The authors analyzed ...whether a physician earning a typical primary care salary can repay the current median level of education debt and meet standard household expenses without incurring additional debt.
In 2010-2011, the authors used comprehensive financial planning software to model the annual finances for a fictional physician's household to compare the impact of various debt levels, repayment plans, and living expenses across three specialties. To accurately develop this spending model, they used published data from federal and local agencies, real estate sources, and national organizations.
Despite growing debt levels, the authors found that physicians in all specialties can repay the current level of education debt without incurring more debt. However, some scenarios, typically those with higher borrowing levels, required trade-offs and compromises. For example, extended repayment plans require large increases in the total amount of interest repaid and the number of repayment years required, and the use of a federal loan forgiveness/repayment program requires a service obligation such as working at a nonprofit or practicing in a medically underserved area.
A primary care career remains financially viable for medical school graduates with median levels of education debt. Graduates pursuing primary care with higher debt levels need to consider additional strategies to support repayment such as extended repayment terms, use of a federal loan forgiveness/repayment program, or not living in the highest-cost areas.
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