The Enhanced Financial Accounts initiative is a long-term effort to augment the Financial Accounts of the United States with a richer and more detailed picture of financial intermediation and interconnections. As part of this initiative, we are providing supplementary information that offers finer detail, additional types of activities, higher-frequency data, and more-disaggregated data, even if such data are not available for all sectors or easily incorporated into the existing structure of the Financial Accounts.
Enhanced Financial Accounts of the United States - Z.1
We study the effects of credit shocks in a model with heterogeneous entrepreneurs, financing constraints, and a realistic firm-size distribution. As entrepreneurial firms can grow only slowly and rely heavily on retained earnings to expand the size of their business, we show that, by reducing entrepreneurial firm size and earnings, negative shocks have a very persistent effect on real activity. In determining the speed of recovery from an adverse economic shock, the most important factor is the extent to which the shock erodes entrepreneurial wealth.
This paper studies the estate tax and its abolition in a
quantitative framework with business investment, borrowing
constraints, estate transmission, and wealth inequality. We find
that the estate tax has little effect on the saving and investment
decisions of small businesses and farms, but does distort the
decisions of larger firms, thereby reducing aggregate output and
savings. Removing such distortions by eliminating the estate tax
does not imply that everyone would be better off. In the case in
which other taxes were raised to re-establish fiscal balance, the
people at the top of the wealth distribution would experience a
large welfare gain, but this would come at the cost of reduced
welfare for most of the population.
In the United States wealth is highly concentrated and very unequally distributed: the richest 1% hold one third of the total wealth in the economy. Understanding the determinants of wealth inequality is a challenge for many economic models. We summarize some key facts about the wealth distribution and what economic models have been able to explain so far.
This paper constructs and calibrates a parsimonious model of occupational choice that allows for entrepreneurial entry, exit, and investment decisions in presence of borrowing constraints. The model fits very well a number of empirical observations, including the observed wealth distribution for entrepreneurs and workers. At the aggregate level, more restrictive borrowing constraints generate less wealth concentration, and reduce average firm size, aggregate capital, and the fraction of entrepreneurs. Voluntary bequests allow some high-ability workers to establish or enlarge an entrepreneurial activity. With accidental bequests only, there would be fewer very large firms, and less aggregate capital and wealth concentration.
I construct a structural model of wealth accumulation, and estimate its parameters using simulation methods and wealth data from the PSID and the SCF. I use the results to study the importance of precautionary savings. The estimates imply that households save mostly for precautionary purposes early in life, while saving for retirement purposes is relevant only near retirement. I discuss the implications of these results for various questions: the importance of heterogeneity in the discount factor (patience) in explaining the dispersion of wealth, the elasticity of savings to changes in interest rates, the importance of bequest motives.
I compute by how much households would increase their wealth in response to an increase in interest rates (eg. lower taxes) in a life cycle model with precautionary savings.
We study how decision makers' concerns about robustness affect prices and quantities in a stochastic growth model. The mean technological growth rate is unobservable, and investors must solve a signal extraction problem. We show that to promote a decision rule that is robust to model misspecification, an investor acts as if a malevolent player threatens to perturb the data generating process. We show that robustness increases the risk prices, and that movements in the risk-return tradeoff are dominated by movements in the growth state probabilities.