Intergenerational Economic Transfers and Wealth Inequality in the United States
by Parinay Gupta
Abstract
Using longitudinal data from Panel Study of Income Dynamics (PSID) from 2007-2021, this paper investigates the role of economic transfers (inheritances and gifts) in asset accumulation processes of US households, in both short-term and long-term. Analysis is done through dimensions of race, wealth quartile, and age. Examining quartiles reveals significant wealth disparities, mirrored in income and education levels. Racially, White households consistently hold higher wealth, income, and educational levels compared to Black households, indicating systematic racial disparities. Multivariate analysis uncovers relationships between socio-economic factors and wealth. Past wealth positively influences future accumulation, except for the lowest quartile. Labor income negatively impacts wealth, particularly in lowest quartile, potentially indicating poverty traps and dissaving, while asset income positively affects quartiles except the lowest, in both short-term and long-term. Total expenditure initially reduces wealth but reverses in quartiles except the lowest in both time frames. Race is significantly associated with wealth, with young Black households consistently disadvantaged, though this reverses for the wealthiest quartile and in longerterm. Age correlates positively with wealth. Transfers’ (inheritances and gifts) impact varies across quartiles, showing diminishing returns and switching signs as wealth quartile increases, indicating differential returns for upper quartiles. Noteworthy is the positive association between transfers received 8-10 years ago and current wealth, irrespective of age and wealth quartile, highlighting their significant long-term role in wealth accumulation.
Professor William Darity, Faculty Advisor
Professor Michelle Connolly, Faculty Advisor
JEL Codes: D14, D31, J15
Withdrawal: The Difficulty of Transitioning to a Cashless Economy
by Praneeth Kandula
Abstract
In 2021, modern payment methods such as mobile pay have increased nearly fivefold since their introduction in 2015. This shift to an increasingly cashless, digital economy has been marked by inequitable financial and technological divides. Historically, Black and Latino adults have had less access to financial systems and are less likely to own traditional computers and home broadband. Without rectifying these issues, a cashless, digital economy only serves to widen divides. Using data from the Diary of Consumer Payment, this study descriptively examines the use of cash and alternative payment methods by different racial and ethnic groups from 2015 through 2020. I also extend this effort to address the effects of COVID-19. I find that racial differences not only exist but also the gap between Black and Latino adults and White adults grows between 2015 and 2019. Still, this paper finds that in 2020 the likelihood to employ cash for a transaction falls for Black adults but not for Latino adults. COVID-19 has been a critical driver of change, forcing both consumers and corporations to shift to a more digital-centric economy. While there have been positive shifts for Black adults, policy ensuring that all racial groups have access to the necessary financial and digital networks will be critical in establishing an equitable economy moving forward.
Professor Lisa A. Gennetian, Faculty Advisor
Professor Michelle P. Connolly, Faculty Advisor
JEL Codes: D1 D31 G20 I24 J11
Determining the Effect of Personal and Familial Wealth on Congressional and State Legislative Election Outcomes
By Anisha Khemlani
This paper seeks to further the debate on money and politics. Specifically, it focuses on the effect of wealth on election outcomes. The goal is to determine the relationship between personal wealth and voter margins of congressional elections and the effect of familial wealth on state legislative elections. A regression analysis of the congressional data suggests that personal wealth does not significantly impact the voter margins of successful candidates. However, a probit analysis of state legislative data suggests that familial wealth can increases candidate’s chances of winning, all else equal. This implies that at the state level, wealth could provide a candidate with advantages, suggesting that money and power may go hand in hand.
Advisor: Nicholas Carnes | JEL Codes: D3, D72 | Tagged: Elections, Personal Wealth, Voter Margin
“Winner-Take-All Economics” Professional Inquiry and Public Discourse on Material Inequality
By Jonathan Pryor
What can account for the failure of economists to extend a firm guiding hand into the public discourse on material inequality in contemporary America? This paper reviews historical and modern economic literature and then extends its focus to the debates in the public sector, private opinion, “think tanks,” the news media, the private sector, special interest groups, and popular culture. The intractable social, political and economic complexity of the problem and the influence of competing interests deter attempts at economic interpretation. Economists should respond to the public need by devoting greater attention to descriptive and prescriptive analyses, developed with an appreciation of the competing interests and activities of the various sectors that must accept any response.
Advisor: Craufurd Goodwin | JEL Codes: A11, A13, B12, B13, B14, B15 | Tagged: Economic Inequality, Income Inequality, Wealth Inequality
Rebalancing, Conditional Value at Risk, and t-Copula in Asset Allocation
By Irving Wang
Traditional asset allocation methods for modeling the trade between risk and return do not fully reflect empirical distributions. Thus, recent research has moved away from assumptions of normality to account for risk by looking at fat tails and asymmetric distributions. Other studies have also considered multiple period frameworks to include asset rebalancing. We investigate the use of rebalancing with fat tail distributions and optimizing with downside risk as a consideration. Our results verify the underperformance of traditional methods in the single period framework and also demonstrate the underperformance of traditional methods in a multiple period rebalancing
framework.
Advisor: Aino Levonmaa, Emma Rasiel | JEL Codes: D3
