Labor income dynamics and the insurance from taxes, transfers and the family

Blundell, Richard; Graber, Michael; Mogstad, Magne

doi:10.1920/wp.ifs.2014.1401

Cited by 43 publications

(55 citation statements)

References 23 publications

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“…The age profile and the variances of permanent (σ 2 p ) and transitory shocks (σ 2 t ) to labor income are obtained by applying to our measure of disposable household labor income the decomposition used by Carroll (1997) and Cocco, Gomes, and Maenhout (2005) (see Appendix A.1 for details). 24 Our estimates of the variances of labor income shocks are very close to those obtained by Blundell, Graber, and Mogstad (2013) who use the same data source, but a different methodology.…”

Section: Parametrizationsupporting

confidence: 60%

“…Our estimates of the variance of permanent and transitory shocks are instead very close to those of Blundell, Graber, and Mogstad (2013) based on the same Norwegian data that we use, but obtained using a different methodology and excluding income from self employment. Unlike us, they allow for age-varying variances, finding that the earnings variances follow a U-shaped profile.…”

Section: A Appendix: Earnings Variances and Human Wealthmentioning

confidence: 51%

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Asset Market Participation and Portfolio Choice Over the Life-Cycle

2015

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We study the life cycle of portfolio allocation following for 15 years a large random sample of Norwegian households using error-free data on all components of households' investments drawn from the Tax Registry. Both, participation in the stock market and the portfolio share in stocks, have important life cycle patterns. Participation is limited at all ages but follows a hump-shaped profile which peaks around retirement; the share invested in stocks among the participants is high and flat for the young but investors start reducing it as retirement comes into sight. Our data suggest a double adjustment as people age: a rebalancing of the portfolio away from stocks as they approach retirement, and stock market exit after retirement. Existing calibrated life cycle models can account for the first behavior but not the second. We show that incorporating in these models a reasonable per period participation cost can generate limited participation among the young but not enough exit from the stock market among the elderly. Adding also a small probability of a large loss when investing in stocks, produces a joint pattern of participation and of the risky asset share that is similar to the one observed in the data. A structural estimation of the relevant parameters of the model reveals that the parameter combination that fits the data best is one with a relatively large risk aversion, small participation cost and a yearly large loss probability of around 1.3 percent.JEL Classification: G11, D14.Keywords: portfolio choice, portfolio rebalancing, asset allocation, asset market participation, life cycle model. * We would like to thankÁrpádÁbrahám, Jerôme Adda, Juan-Carlos Conesa, Francisco Cocco, Maria Gustafsson, Elin Halvorsen, Jonathan Heathcote, Dirk Krueger and Marno Verbeek for helpful comments and suggestions. We are grateful to Francisco Cocco for making the code of his life cycle model available to us. We thank seminar participants at

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Section: Parametrizationsupporting

confidence: 60%

Section: A Appendix: Earnings Variances and Human Wealthmentioning

confidence: 51%

Asset Market Participation and Portfolio Choice Over the Life-Cycle

2015

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“…This may be due to measurement and sampling errors. Blundell, Graber, and Mogstad (2013) document in high-quality administrative data from Norway that the variances of shocks to market (pretax) income clearly exceed those of disposable (after-tax) income. (The Norwegian data also reect the presence transitory income shocks (as opposed to just measurement error).)…”

Section: Calibrationmentioning

confidence: 99%

The Distribution of Wealth and the MPC: Implications of New European Data

Carroll

Slacalek

Tokuoka

2014

American Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. All rights reserved. Terms of use: Documents in ISSN 1725-2806 (online) EU Catalogue NoQB-AR-14-022-EN-N (online)Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. The HFCN collects household-level data on households' finances and consumption in the euro area through a harmonised survey. The HFCN aims at studying in depth the micro-level structural information on euro area households' assets and liabilities. The objectives of the network are:1) understanding economic behaviour of individual households, developments in aggregate variables and the interactions between the two;2) evaluating the impact of shocks, policies and institutional changes on household portfolios and other variables;3) understanding the implications of heterogeneity for aggregate variables; 4) estimating choices of different households and their reaction to economic shocks; 5) building and calibrating realistic economic models incorporating heterogeneous agents; 6) gaining insights into issues such as monetary policy transmission and financial stability.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB), Pirmin Fessler (Oesterreichische Nationalbank), Michalis Haliassos (Goethe University Frankfurt), Tullio Jappelli (University of Naples Federico II), Sébastien Pérez Duarte (ECB), Jiri Slacalek (ECB), Federica Teppa (De Nederlandsche Bank), Peter Tufano (Oxford University) and Philip Vermeulen (ECB).The paper is released in order to make the results of HFCN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. AcknowledgementsThis paper uses data from the Eurosystem Household Finance and Consumption Survey. We thank participants in the European Central Bank Conference on Household Finance and Consumption for helpful comments. The views presented in this paper are those of the authors, and should not be attributed to the European Central Bank or the Japanese Ministry of Finance. Christopher D. CarrollJohns Hopkins University; e-mail: ccarroll@jhu.edu Jiri SlacalekEuropean Central Bank; e-mail: jiri.slacalek@ecb.europa.eu Kiichi TokuokaMinistry of Finance, Tokyo, Japan; e-mail: kiichi.tokuoka@mof...

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“…Considerable flexibility can be introduced into the former approach with the aid of age specific deterministic trends in mean and variances, as for example in Blundell, Graber, and Mogstad (2014), or stochastic specifications of the variance process, as in Meghir and Pistaferri (2004). While most of the foregoing work relies on first and second order moment information and therefore, at least implicitly adopts a Gaussian framework, there is evidence that such assumptions may distort important features of the earnings process.…”

Section: Heterogeneous Income Dynamicsmentioning

confidence: 99%

Unobserved heterogeneity in income dynamics: an empirical Bayes perspective

Koenker

2014

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Abstract. Empirical Bayes methods for Gaussian compound decision problems involving longitudinal data are considered. The new convex optimization formulation of the nonparametric (Kiefer-Wolfowitz) maximum likelihood estimator for mixture models is employed to construct nonparametric Bayes rules for compound decisions. The methods are first illustrated with some simulation examples and then with an application to models of income dynamics. Using PSID data we estimate a simple dynamic model of earnings that incorporates bivariate heterogeneity in intercept and variance of the innovation process. Profile likelihood is employed to estimate an AR(1) parameter controlling the persistence of the innovations. We find that persistence is relatively modest,ρ ≈ 0.48, when we permit heterogeneity in variances. Evidence of negative dependence between individual intercepts and variances is revealed by the nonparametric estimation of the mixing distribution, and has important consequences for forecasting future income trajectories.

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Labor income dynamics and the insurance from taxes, transfers and the family

Cited by 43 publications

References 23 publications

Asset Market Participation and Portfolio Choice Over the Life-Cycle

Asset Market Participation and Portfolio Choice Over the Life-Cycle

The Distribution of Wealth and the MPC: Implications of New European Data

Unobserved heterogeneity in income dynamics: an empirical Bayes perspective

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