The wealth distribution with durable goods

This paper studies the effect that illiquid assets and collateral credit frictions have on the level of wealth inequality in a standard model of ex-ante heterogenous agents with idiosyncratic uncertainty. We calibrate our model so that its steady state statistics match selected aggregate statistics of the U.S. economy and data on the earnings distribution. We find that adding illiquid assets and collateral credit frictions decreases wealth inequality decreases slightly relative to an economy with liquid assets and no credit frictions. The effect is small because these frictions mostly affect poor households that account for a small fraction of aggregate wealth. Nevertheless, our richer model allows us to study other dimensions of wealth inequality. In particular, our model replicates the fact that financial assets are more concentrated than total wealth, while residential assets are less concentrated. Furthermore, we document that, in the U.S., the earnings and housing distributions are remarkably similar. Our model can account for this fact so long as the earnings process is fairly persisten

On the user cost and homeownership

This paper studies the determinants of housing tenure choice and the differences in the cost of housing services across households in an overlapping generations model with household-specific uninsurable earnings risk and housing prices that vary over time. We model houses as illiquid assets that provide collateral for loans. To analyze the impact of preferential housing taxation on the tenure choice, we consider a tax system that mimics that of the U.S. economy in a stylized way. We find that a mixture of idiosyncratic earnings uncertainty, house price risk, down payments and transaction costs are needed for the model to deliver life cycle patterns of homeownership and portfolio composition similar to those found in the data. Through simulations, we also show that a rental equivalence approach (relative to a user cost approach) overestimates the mean unit cost of housing by approximately 3 percent

Consumption, retirement and life-cycle prices: Evidence from Spain

Evidence from several countries reveals a substantial drop in household consumption around retirement age that some researchers believe is difficult to reconcile with standard life-cycle models. Using detailed expenditure data from a Spanish panel survey, we find no evidence of a consumption-retirement puzzle in Spain for the period of 1985–2004. However, we find a drop in food expenditure at home from 1998 to 2004 and evidence on households paying lower prices for the food they purchase after retirement in this latter period. Our findings are consistent with a household model that allows for home production whereby retirees substitute away from market goods to home production, as long as one accounts for the greater participation in housework by men after retirement coinciding with the latter period of the survey.

Demand patterns in Spain

This paper contains the Spanish contribution to the consumption part of the DEMPATEM project. The paper is organized in five Sections and three Appendixes. Section I describes the main data source, the Encuestas de Presupuestos Familiares (EPF) collected by the Instituto Nacional de Estadística (INE) in 1973-74, 1980-81 and 1990-91. Measurement problems in relation to household expenditures and incomes are discussed. Section II presents the evolution of consumption expenditure patterns at current prices using two commodity classifications. The first one, fully described in Appendix A, classifies all commodities into 8 goods and 12 services. In the second one, used for international comparisons in the DEMPATEM project, expenditures in housing, health, education and durable goods are excluded from total household expenditures. In the Spanish case, the magnitude to be explained by econometric methods is the change in budget shares of 8 non-durable goods and 9 services between 1980-81 and 1990-91. Section III is devoted to the introduction of a number of potential explanatory factors, including a) demographic and other household characteristics, b) income (or household expenditures) effects, c) changes in household expenditures inequality, d) changes in relative prices holding quantities demanded constant, referred to as the Baumol effect as in Blow et al. (2003), and e) other changes. Sector IV contains a discussion of the estimated budget elasticities for the 17 commodities in 1980-81 and 1990-91, the explanation of the increase in the services share over the period, and the comparison of this magnitude between Spain and the U.S. in 1980 and 1990. Appendix B describes how the Baumol effect has been constructed in the Spanish case, while regression results for the 17 Engel curve system are relegated to Appendix C. The final Section V studies the robustness of the previous result

House price growth when kids are teenagers: a path to higher intergenerational achievement?

This paper examines whether rising house prices immediately prior to children entering their college years impacts their intergenerational earnings mobility and/or educational outcomes. Higher house prices provide homeowners, especially liquidity constrained ones, with additional funding to invest in their children's human capital. The results show that a 1 percentage point increase in house prices, when children are 17-years-old, results in roughly 0.8 percent higher annual income for the children of homeowners, and 1.2 percent lower annual income for the children of renters. Additional analysis shows that the children who benefit the most from rising house prices are those whose parents are liquidity constrained homeowners. Rising house prices also make homeowners' children more likely to graduate from college and have less noncollateralized debt when young adults. Both of these results are consistent with rising house prices enabling parents to invest more in their children.Housing - Prices ; College graduates