John Karl Scholz

Intergenerational Transfers and the Accumulation of Wealth

This paper uses household data to provide direct estimates of intergenerational transfers as a source of wealth. The authors distinguish between intended transfers (for example, gifts to other households) and possibly unintended transfers (bequests) and estimate that intended transfers account for at least 20 percent of net worth. Thus, a significant portion of the U.S. wealth cannot be explained by the life-cycle model, even when the model is augmented to allow for bequests. Estimated bequests can account for an additional 31 percent of net worth. The authors also show that transfers among living people are about half as large as bequests.

Do Saving Incentives Work

American Saving Rates have recently fallen to their lowest levels since 1950. After averaging roughly 8 percent in the 1950s, 1960s, and 1970s, the net national saving rate fell to about 4.5 percent in the 1980s and has fallen below 2 percent since 1990. The personal saving rate has also declined, from an average of 7 percent between 1950 and 1980 to an average of 4.6 percent since 1990. These declines have raised concerns that the economy may be unable to finance investment and sustain growth over the long run and that a significant fraction of the baby-boom generation may not be saving adequately for retirement.

Private Saving and Public Policy

The evidence presented in this paper supports the view that many Americans, particularly those without a college education, save too little. Our analysis also indicates that it should be possible to increase total personal saving among lower income households by encouraging the formation and expansion of private pension plans. It is doubtful that favorable tax treatment of capital income would stimulate significant additional saving by this group. Conversely, the expansion of private pensions would probably have little effect on saving by higher income households. However, these households are more likely to increase saving significantly in response to favorable tax treatment of capital income. Currently, eligibility for IRAs is linked to an AGI cap, and pension coverage is more common among higher income households than among low income households. The most effective system for promoting personal saving would have precisely the opposite features. Extending tax incentives for saving to higher income households is problematic. We discuss three competing policy options, IRAs with AGI caps, the universal IRA, and the Premium Saving Account (PSA). Our analysis reveals that the PSA system is a more cost-effective vehicle for providing saving incentives to all households, particularly those in the top quintile of the income distribution.

Personal Bankruptcy and Credit Supply and Demand

This paper examines how personal bankruptcy and bankruptcy exemptions affect the supply and demand for credit. While generous state-level bankruptcy exemptions are probably viewed by most policymakers as benefitting less-well-off borrowers, our results using data from the 1983 Survey of Consumer Finances suggest they increase the amount of credit held by high-asset households and reduce the availability and amount of credit to low-asset households, conditioning on observable characteristics. We also find evidence that interest rates on automobile loans for low-asset households are higher in high exemption states. Thus, bankruptcy exemptions redistribute credit toward borrowers with high assets.

WIC Eligibility and Participation

The authors examine WIC eligibility and participation using the Current Population Survey (CPS), the Survey of Income and Program Participation (SIPP), and state-level administrative data.

A direct examination of the dividend clientele hypothesis

Abstract This paper describes and estimates an empirical model that directly tests the dividend clientele hypothesis using data on individual portfolios from the 1983 Survey of Consumer Finances. The results provide evidence that investors are sensitive to tax rates when choosing portfolio dividend yields, and thus support a number of indirect tests that use security price data to investigate the clientele hypothesis. However, the approach taken in this paper avoids the difficulty, inherent in the indirect studies, of distinguishing between tax-driven and arbitrage- driven changes in ex-day security prices.

Children and Household Wealth

This paper examines the effects of children on consumption and wealth. To anchor intuition, we develop implications using a simple permanent income model with no uncertainty and complete markets. But this framework does not come close to matching the distribution of existing wealth. We therefore examine the effects of children using a rich, augmented life-cycle model, and using a life-cycle model with endogenous fertility. We find that children have a large effect on household’s net worth and consequently are an important factor in understanding the wealth distribution. The effects of children are much larger than the effects of asset tests associated with cash and near-cash transfers, given earnings realizations and the social security system experienced by households in the original HRS cohort. We also show that fertility and credit constraints interact in ways that significantly affect wealth accumulation.

Health and Wealth in a Life Cycle Model

This paper presents a preliminary model of health investments over the life cycle. Health affects both longevity and provides flow utility. We analyze the interplay between consumption choices and investments in health by solving each household’s dynamic optimization problem to obtain predictions on health investments and consumption choices over the lifecycle. Our preliminary model does a good job of matching the distribution of medical expenses across households in the sample. We illustrate the scope of future model applications by examining the effects of a stylized Medicare program on patterns of wealth and mortality.

Trends in the Level and Distribution of Income Support

Means‐tested and social insurance programs in the United States have been transformed over the last 25 years, with expansions in Medicare and Medicaid, the Earned Income Tax Credit, and Supplemental Security Income and with contractions in Temporary Assistance for Needy Families. We examine the effect of these changes on benefits received by families. We find that transfer program expenditures in total rose from 1984 to 2004, but the increase was spread unevenly across different demographic groups and income classes. Very poor elderly, disabled, and childless families received greatly increased expenditures, mostly arising from Social Security, Social Security Disability Insurance, SSI, and the health programs. Very poor single‐parent and two‐parent households experienced declines in expenditures, driven largely by lower recipiency rates, benefit receipt, or both in the Aid to Families with Dependent Children/TANF and Food Stamp programs. For example, AFDC/TANF participation for one‐adult families with children and market income below 50% of the poverty line fell from 62% in 1984 to 24% in 2004. However, expenditures received by one‐ and two‐parent households further up the income scale increased, largely because of expansions of the EITC. Thus there was a redistribution of income from the very poor to the near‐poor and nonpoor for these one‐ and two‐parent households, as well as an overall relative redistribution from them to the elderly, disabled, and childless.

Facial Attractiveness and Lifetime Earnings: Evidence from a Cohort Study

We use unique longitudinal data to document an economically and statistically significant positive correlation between the facial attractiveness of male high school graduates and their subsequent labor market earnings. There are only weak links between facial attractiveness and direct measures of cognitive skills and no link between facial attractiveness and mortality. Even after including a lengthy set of characteristics, including IQ, high school activities, proxy measures for confidence and personality, family background, and additional respondent characteristics in an empirical model of earnings, the attractiveness premium is present in the respondents’ mid-30s and early 50s. Our findings are consistent with attractiveness being an enduring, positive labor market characteristic.