No Strings Attached: How The Tax-Free Savings Account Can Help Lower-Income Canadians Get Ahead

The federal government’s new Tax-Free Savings Accounts (TFSAs) can help correct the problem of government clawback provisions that discourage or effectively prohibit spersonal saving, provided that provinces and territories refrain from imposing new asset tests and clawbacks that undo savers’ potential gains.fiscal policy, tax-free savings accounts (TFSA)

The decline in the employment rate for people with disabilities: Bad data, bad health, or bad policy?

A major debate has begun over reports of an unprecedented decline in the employment of working age people with disabilities over the 1990s business cycle. Here we review the literature on what can and cannot be said with current data on this subject and conclude that this decline is not an artifact of the data. We then review the various explanations and evidence for this decline and conclude that it was caused by changes in social policy rather than increases in the severity of the underlying health conditions and impairments of this population. The implication is that significant changes in public policy are needed to more effectively integrate working age people with disabilities into employment. We identify and discuss the most promising directions for public policy in this area

Contrasting the Employment of Single Mothers and People with Disabilities

The transition of single women with children off the welfare rolls and into employment (see Figures 1 and 2) in the 1990s has been described as “stunning” by leading policy researchers (see, for instance, Blank 2002). The authors in The Decline in Employment of People with Disabilities: A Policy Puzzle (Stapleton and Burkhauser 2003) document and analyze an equally stunning transition of working-age people with disabilities out of the workforce and onto disability income support programs (see Figures 1 and 2), despite the upsurge in government rhetoric proclaiming increased employment and economic independence as a primary policy goal. Employment and program participation trends for both populations departed sharply from trends in the prior decade

Employing those not expected to work: The stunning changes in the employment of single mothers and people with disabilities in the United States in the 1990s

This report compares the dramatic changes in the level of government benefits provided to single mothers and people with disabilities, especially in the 1990s. While welfare reforms and economic growth during the 1990s led to a dramatic increase in the employment of single women with children, the employment rate of individuals with disabilities dramatically declined, and continued to decline, in spite of peak periods of economic growth over the business cycle

Non-Market Wealth, Background Risk and Portfolio Choice

We examine the effects of non-portfolio risks on optimal portfolio choice. Examples of non-portfolio risks include, among others, uncertain labor income, uncertainty about the terminal value of fixed assets such as housing and uncertainty about future tax liabilities . In particular, while some of these risks are added to portfolio value and have been amply studied, others are multiplicative in nature and have received far less attention. Moreover, the combined effects of multiple risks lead to some seemingly paradoxical choice behavior. We rationalize such behavior and we show how non-portfolio risks might lead to seemingly U-shaped relative risk aversion for a representative investor, as found empirically by Ait-Sahilia and Lo (2000) and Jackwerth (2000).Portfolio choice, Derived relative risk aversion, Additive background risk, Multiplicative background risk

Two-Dimensional Risk-Neutral Valuation Relationships for the Pricing of Options.

The Black-Scholes model is based on a one-parameter pricing kernel with constant elasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel with at least two parameters. We price European-style options on assets whose probability distributions have two unknown parameters. We assume a pricing kernel which also has two unknown parameters. When certain conditions are met, a two-dimensional risk-neutral valuation relationship exists for the pricing of these options: i.e. the relationship between the price of the option and the prices of the underlying asset and one other option on the asset is the same as it would be under risk neutrality. In this class of models, the price of the underlying asset and that of one other option take the place of the unknown parameters.

Risk Taking with Additive and Multiplicative Background Risks

We examine the effects of background risks on optimal portfolio choice. Examples of background risks include uncertain labor income, uncertainty about the terminal value of fixed assets such as housing and uncertainty about future tax liabilities. While some of these risks are additive and have been amply studied, others are multiplicative in nature and have received far less attention. The simultaneous effect of both additive and multiplicative risks has hitherto not received attention and can explain some paradoxical choice behavior. We rationalize such behavior and show how background risks might lead to seemingly U-shaped relative risk aversion for a representative investor.Derived risk aversion, Additive, multiplicative background risk

Multiplicative Background Risk

Although there has been much attention in recent years on the effects of additive background risks, the same is not true for its multiplicative counterpart. We consider random wealth of the multiplicative form xy, where x and y are statistically independent random variables. We assume that x is endogenous to the economic agent, but that y is an exogenous and nontradable background risk, which represents a type of market incompleteness. Our main focus is on how the presence of the multiplicative background risk y affects risk-taking behavior for decisions on the choice of x. We characterize conditions on preferences that lead to more cautious behavior.multiplicative risks, background risk, incomplete markets, standard risk aversion, affiliated utility function, multiplicative risk vulnerability

Multiplicative background risk

We consider random wealth of the multiplicative form xy, where x and y are statistically independent random variables. We assume that x is endogenous to the economic agent, but that y is an exogenous and uninsurable background risk. Our main focus is on how the randomness of y affects risk-taking behavior for decisions on the choice of x. We characterize conditions on preferences that lead to more cautious behavior. We also develop the concept of the affiliated utility function, which we define as the composition of the underlying utility function and the exponential function. This allows us to adapt several results for additive background risk to the multiplicative case. -- Wir betrachten den zufälligen Reichtum der multiplikativen Form xy, wo x und y statistisch unabhängige Zufallsvariablen sind. Wir nehmen an, daß x endogen für den ökonomischen Agenten ist, aber daß y ein exogenes und nicht versicherbares Hintergrundrisiko ist. Unser Hauptaugenmerk liegt darauf, wie die Zufälligkeit von y das Risikoverhalten bei Entscheidungen für x beeinflußt. Wir charakterisieren die Bedingungen der Präferenzen, die zu einem vorsichtigeren Verhalten führen. Wir entwickeln auch ein Konzept der „affiliated“ Nutzenfunktion, die eine Zusammensetzung der ursprünglichen Nutzenfunktion und der Exponentialfunktion ist. Dies erlaubt es uns, mehrere Ergebnisse für additive Hintergrundrisiken auf den multiplikativen Fall anzupassen.background risk,standard risk aversion,affiliated utility function

Has the Employment Rate of People with Disabilities Declined? Policy Brief

A major debate has begun over reports of an unprecedented decline in the employment rate of working-age people with disabilities by those using currently available data sources to track the health employment and economic well-being of the United States population. Many question whether the decline is real, and some have even called on the Federal government to end its financial support for the dissemination of employment estimates for people with disabilities using currently available data. In this policy brief we summarize the arguments and evidence on the issue, and reflect on the importance of the issue for the ongoing debate on disability policy. We conclude that the decline is real and it has important implications for public policy