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Income Transfers and Assets of the Poor

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  • James P. Ziliak

    (University of Kentucky)

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    Abstract

    Contrary to the predictions of the standard life-cycle model, many low-lifetime-income households accumulate little wealth relative to their incomes compared to households with high lifetime income. I use data from the Panel Study of Income Dynamics and a correlated random-effects generalized-method-of-moments estimator to decompose the rich-poor gaps in wealth-to-permanent-income ratio into the portions attributable to differences in characteristics such as labor market earnings, income uncertainty, observed demographics, and the utilization of transfer programs which may have stringent income and liquid-asset tests, and those attributable to differences in the estimated coefficients on the respective characteristics. The results suggest that wealth-to-permanent-income ratios are increasing in permanent labor income and income uncertainty, but that transfer income, with or without asset tests, discourages liquid-asset accumulation. The decompositions indicate that most of the rich-poor wealth gap is attributable to differences in average characteristics and not coefficients. The leading factor driving the gap between the rich and poor in the ratio of liquid wealth to permanent income is asset-tested transfer income, whereas the leading factor driving the gap in the ratio of net worth to permanent income is labor-market earnings. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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    Bibliographic Info

    Article provided by MIT Press in its journal Review of Economics and Statistics.

    Volume (Year): 85 (2003)
    Issue (Month): 1 (February)
    Pages: 63-76

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    Handle: RePEc:tpr:restat:v:85:y:2003:i:1:p:63-76

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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    Cited by:
    1. James X. Sullivan, 2006. "Welfare Reform, Saving, and Vehicle Ownership: Do Asset Limits and Vehicle Exemptions Matter?," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 41(1).
    2. Erik Hurst & James P. Ziliak, 2006. "Do Welfare Asset Limits Affect Household Saving?: Evidence from Welfare Reform," Journal of Human Resources, University of Wisconsin Press, University of Wisconsin Press, vol. 41(1).
    3. Susan Thorp & Hardy Hulley & Rebecca McKibbin & Andreas Pedersen, 2009. "Means-Tested Income Support, Portfolio Choice And Decumulation In Retirement," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2009-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    4. Hardy Hulley & Rebecca Mckibbin & Andreas Pedersen & Susan Thorp, 2013. "Means-Tested Public Pensions, Portfolio Choice and Decumulation in Retirement," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 89(284), pages 31-51, 03.
    5. Centeno, Mario & Novo, Alvaro A., 2012. "Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence," IZA Discussion Papers 6992, Institute for the Study of Labor (IZA).
    6. Mário Centeno & Álvaro Novo, 2009. "Reemployment wages and UI liquidity effect: a regression discontinuity approach," Portuguese Economic Journal, Springer, Springer, vol. 8(1), pages 45-52, April.

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