Inheritance, gifts and the accumulation of wealth for low-income households

Many low-income households in rich countries have very little wealth, but the role of intergenerational wealth transmission in underpinning this deficit is not known. This article seeks to fill that gap by investigating patterns of past wealth transfer receipt for low-income versus other households in seven rich countries and assessing the contribution that these transfers, or their absence, make to current wealth levels. We find that households on low incomes are relatively disadvantaged in terms of intergenerational transfers received in the past, both in terms of the likelihood of having received any and the amounts received by those who do benefit from such transfers. The role that this disadvantage plays in the linkage between current low-income and low wealth is assessed and evidence presented that it is significant. Simulation of a universal wealth transfer scheme or ‘capital endowment’ on reaching adulthood for two countries shows that such a policy could lead to a marked decline in the proportion of low-income adults with negative or no wealth. This and alternative or complementary policy responses to these wealth deficits merit the most serious attention.

Own Credit Risk Accounting, Modigliani-Miller Theorem, and the Fallacy of Counter-Intuitive Results

Purpose: This article tests own credit risk accounting under Modigliani-Miller theory to determine whether there is a fundamental fallacy in the unsolved issue of counter-intuitive results. Design/methodology/approach: A system of equations derived from the MM theorem to own risk. Findings: Solutions to the wealth transfer hypothesis. Parameters of issuer and holder that nullify own credit risk gain/loss and impairment loss/gain. A theoretical framework is developed to reconcile accounting to Modigliani-Miller theory. If the MM theory is true, as generally it is held to be, the system of equations shows that the recognition of own credit gain or loss would arise from different accounting measurement bases of liability own risk versus assets impairment, and by not reflecting the rebound effect in liability fair value measurement, in both cases not a faithfully representation of the substance of the facts and circumstances. The former would require a re-alignment between impairment and financial liability measurement rules. The latter would require a rethinking of fulfillment vs. fair value measurement to these liabilities. In addition, given the tenet that the accounting does not recognize shareholder wealth transfer, the current financial performance dilemma can be solved by recognizing in equity the concept of capital maintenance adjustment. Originality: Rare, if not unique, innovative direct application of MM paradigm to own risk. Implications: Significant contribution to the debate on performance and OCI, counter-intuitive results and accounting mismatch, fulfilment value versus fair value, incomplete recognition of contemporaneous asset value, and the definition of income in the Conceptual Framework.

Inheritance, Gifts and the Wealth Deficit of Low-Income Households

Many low-income households in rich countries have very little wealth, but the role of intergenerational wealth transmission in underpinning this deficit is not known. This paper seeks to fill that gap by investigating patterns of past wealth transfer receipt for low-income versus other households in seven rich countries and assessing the contribution that these transfers, or their absence, make to current wealth levels. We find that households on low incomes are relatively disadvantaged in terms of intergenerational transfers received in the past, both in terms of the likelihood of having received any and the amounts received by those who do benefit from such transfers. The role that this disadvantage plays in the linkage between current low income and low wealth is assessed and evidence presented that it is significant. Simulation of a universal wealth transfer scheme or ‘capital endowment’ on reaching adulthood for two countries shows that such a policy could lead to a marked decline in the proportion of low-income adults with no wealth. This and alternative or complementary policy responses to these wealth deficits merit the most serious attention. (Stone Center on Socio-Economic Inequality Working Paper)

Wealth transfers and labour supply: impact of inheritances and gifts by gender in Europe

PurposeThe authors analyse how the receipt of a wealth transfer (inheritance or gift) affects labour force participation in 14 EU countries. They compare the effect of receiving an inheritance or a gift and investigate different behaviours at the gender level and educational level and for elderly individuals.Design/methodology/approachThe authors use data from the Household Finance and Consumption Survey for 14 European countries and adopt an instrumental variable approach. They use information on the type of donor (family and nonfamily) to infer the degree of anticipation of a wealth transfer.FindingsThe authors find that unexpected wealth transfers have a negative impact on labour force participation, with a stronger impact for gifts than for inheritances. For gender, they find larger negative impacts for females than for males, which is in line with a weaker attachment to the labour market. Receiving an unexpected wealth transfer may also result in early retirement.Originality/valueThe paper offers a novel comparison of the effect of receiving an inheritance or a gift on labour force participation using a unique European dataset. The authors investigate whether males and females react differently to the receipt of a wealth transfer and the existence of different responses at the educational level and for elderly individuals.

Corporate Payout Policy and Credit Risk: Evidence from Credit Default Swap Markets

We examine whether and how payout policy affects credit risk using evidence from the credit default swap (CDS) market. CDS spreads increase substantially in response to announcements of dividend cuts, especially during recessions and among firms experiencing financial distress. CDS spreads also react more strongly to permanent and less anticipated dividend cuts. The size of the CDS reaction is more pronounced for financial firms, which are inherently more opaque. In contrast, CDS spreads react weakly to dividend raises and share repurchases. The results show that the information effect of dividend changes dominates the wealth-transfer effect. This paper was accepted by Kay Giesecke, finance.

Policy Forum: Taxing Wealth Transfers in Canada Using an Accession Tax

Wealth transfer taxes have had a long history in Canada: the Rowell-Sirois report suggested federal administration; the Carter report emphasized the importance of including wealth transfers in income. Yet by the 1980s wealth transfer taxes had largely disappeared in Canada. This article makes the case for consideration of an accession tax, which taxes wealth transfers in the recipients' hands. An accession tax has significant administrative advantages over the annual wealth tax featured in current popular debates.

Donald Trump, investor attention and financial markets

Information attracts attention but attention is costly. Social media has been at the forefront ofinformation dissipation due to the sheer number of users propagating information in a fast but cheap way. We look into one specific case where Donald Trump’s tweets on companies have had effect on retail investors whose only source of information is internet. We find that retail investor attention spike as indicated by surge in Google Search Volume Index following Donald Trump’s tweet, irrespective of the tone in the tweet. We also find that Trump’s tweet facilitates wealth transfer due to selling from the retail investors followed by buying by the institutional investors in low retail investor attention environment. Finally, we see no effect in intra-day returns for the stocks irrespective of the attention they are receiving.