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Understanding Differences in Household Financial Wealth between the United States and Great Britain

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  • James Banks

    (Institute for Fiscal Studies & University College, London)

  • Richard Blundell

    (Institute for Fiscal Studies & University College, London)

  • James P. Smith

    (RAND)

Abstract

In this paper, we describe the household wealth distribution in the United States and United Kingdom over the past two decades, and compare both wealth inequality and the form in which wealth is held. Unconditionally, there are large differences in financial wealth between the two countries at the top fifth of the wealth distribution. Even after controlling for age and income differences between the two countries, we show that the median U.S. household accumulates more financial wealth than their United Kingdom counterpart does. We explore a number of alternative reasons for these differences and reject some explanations as implausible. Some of the observed differences are due to what we refer to as 'initial conditions,' in particular previously high rates of corporate equity ownership in the U.S. and housing ownership among young British households. This only provides a partial explanation, however. Among other explanations are differences in the annuitization of retirement incomes and in the amount of wealth held in the form of housing equity. In the first case, forced and voluntary annuitization in the United Kingdom mean older households face considerably less longevity risk. In the second, higher house price volatility in the United Kingdom can create an incentive, as shown in Banks, Blundell, and Smith (2002), away from stock market equity earlier in the life cycle.

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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 0403028.

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Length: 40 pages
Date of creation: 17 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpla:0403028

Note: Type of Document - pdf; pages: 40. Journal of Human Resources, Volume 38, Number 2, Spring 2003, pp. 241-279
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Web page: http://128.118.178.162

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  1. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 631-49, July.
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  4. Juster, F. Thomas & Smith, James P. & Stafford, Frank, 1999. "The measurement and structure of household wealth," Labour Economics, Elsevier, vol. 6(2), pages 253-275, June.
  5. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  6. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  7. Simon Burgess & Karen Gardiner & Stephen Jenkins & Carol Propper, 2000. "Measuring income risk," LSE Research Online Documents on Economics 51327, London School of Economics and Political Science, LSE Library.
  8. F. Thomas Juster & Joseph P. Lupton & James P. Smith & Frank Stafford, 2004. "The decline in household saving and the wealth effect," Finance and Economics Discussion Series 2004-32, Board of Governors of the Federal Reserve System (U.S.).
  9. Martin Browning & Mette Ejrnæs, 2009. "Consumption and Children," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 93-111, February.
  10. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  11. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 1997. "What Accounts for the Variation in Retirement Wealth Among U.S. Households?," Working Papers 97035, Stanford University, Department of Economics.
  12. repec:ese:iserwp:2000-15 is not listed on IDEAS
  13. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September.
  14. James Banks & Richard Blundell, 1994. "Household Saving Behavior in the United Kingdom," NBER Chapters, in: International Comparisons of Household Saving, pages 169-206 National Bureau of Economic Research, Inc.
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Cited by:
  1. Marco Cagetti & Mariacristina De Nardi, 2006. "Wealth Inequality: Data and Models," NBER Working Papers 12550, National Bureau of Economic Research, Inc.
  2. James Banks & Michael Marmot & Zoe Oldfield & James P. Smith, 2006. "The SES Health Gradient on Both Sides of the Atlantic," NBER Working Papers 12674, National Bureau of Economic Research, Inc.
  3. Richard Disney & Sarah Bridges & John Gathergood, . "Housing Wealth and Household Indebtedness: Is there a Household ‘Financial Accelerator’?," Discussion Papers 06/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  4. Olympia Bover, 2010. "Wealth Inequality And Household Structure: U.S. Vs. Spain," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(2), pages 259-290, 06.
  5. Fichera, E.; & Gathergood, J.;, 2013. "House Prices, Home Equity and Health," Health, Econometrics and Data Group (HEDG) Working Papers 13/01, HEDG, c/o Department of Economics, University of York.
  6. Almås, Ingvild & Mogstad, Magne, 2010. "Older or Wealthier? The Impact of Age Adjustment on Cross-Sectional Inequality Measures," Discussion Paper Series in Economics 9/2010, Department of Economics, Norwegian School of Economics.
  7. Tullio Jappelli & Marco Pagano & Marco di Maggio, 2008. "Households’ Indebtedness and Financial Fragility," CSEF Working Papers 208, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Sep 2010.
  8. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
  9. Sònia Muñoz, 2006. "Wealth Effects in Europe," IMF Working Papers 06/30, International Monetary Fund.
  10. Francisco Azpitarte, 2011. "Measurement and identification of asset-poor households: a cross-national comparison of Spain and the United Kingdom," Journal of Economic Inequality, Springer, vol. 9(1), pages 87-110, March.
  11. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
  12. Francisco Azpitarte, 2008. "Measurement and Identification of Asset-Poor Households: A Cross-National Comparison of Spain and the United Kingdom," Working Papers 105, ECINEQ, Society for the Study of Economic Inequality.
  13. Margot Jackson & Kathleen Kiernan & Sara McLanahan, 2010. "Nativity Differences in Child Development across Diverse Populations, Settings and Outcomes: Do Socioeconomic Resources Narrow or Widen the Gap?," Working Papers 1270, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Research on Child Wellbeing..

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