scholarly journals Endogenous Partial Insurance and Inequality

2019 ◽  
Vol 18 (5) ◽  
pp. 2270-2314
Author(s):  
Eric Mengus ◽  
Roberto Pancrazi
Keyword(s):  
Interest Rate ◽  
Middle Class ◽  
Wealth Inequality ◽  
Consumption Smoothing ◽  
Insurance Market ◽  
Asset Markets ◽  
Asset Accumulation ◽  
Poor Households ◽  
Participation Costs ◽  
Partial Insurance

Abstract In this paper, we propose a model of endogenous partial insurance and we investigate its implications for macroeconomic outcomes, such as wealth inequality, asset accumulation, interest rate, and consumption smoothing. To this end, we include participation costs to state-contingent asset markets into an otherwise standard Aiyagari (1994) model. We highlight the resulting nonmonotonic relationship between wealth and insurance-market participation when insurance is costly. Poor households remain uninsured, middle-class households participate in the insurance market, whereas rich households decide to self-insure by only purchasing risk-free assets. After theoretically characterizing the endogenous partial insurance equilibrium, we quantify its effect, emphasizing the roles of a participation channel and an interest rate channel.

scholarly journals Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

2018 ◽  
Vol 7 (1) ◽  
pp. 17-42
Author(s):  
Milijana Novović Burić ◽  
Vladimir Kašćelan ◽  
Milivoje Radović ◽  
Ana Lalević Filipović
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Life Insurance ◽  
Financial Management ◽  
Financial Stability ◽  
Interest Rate Risk ◽  
Economic Security ◽  
Insurance Market ◽  
Insurance Companies ◽  
Rate Risk

Abstract Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct impact on solvency, economic security, and overall financial stability of insurance companies. It is very important for insurance companies to adequately calculate risks to which they are exposed. Asset liability management (ALM), as an integrated approach to financial management, requires simultaneous decision-making about categories and values of assets and liabilities in order to establish the optimum volume and the ratio of assets and liabilities, with the understanding of complexity of the financial market in which financial institutions operate. ALM focuses on a significant number of risks, whereby the emphasis in this paper will be on interest rate risk which indicates potential losses that may reflect in a lower interest margin, a lower value of assets or both, in terms of changes in interest rates. In the above context, the aim of this paper is to show how to protect from interest rate changes and how these changes influence the insurance market in Montenegro, both from the theoretical and the practical point of view. The authors consider this to be an interesting and very important topic, especially because the life insurance market in Montenegro is underdeveloped and subject to fluctuations. Also, taking into account the fact that Montenegro is a country that has been making serious efforts to join the EU, it is expected that insurance companies in Montenegro will strengthen their financial position in the market even using the ALM traditional techniques, which is shown in this paper.

Disparate Recoveries: Wealth, Race, and the Working Class after the Great Recession

2021 ◽  
Vol 695 (1) ◽  
pp. 173-192
Author(s):  
Fenaba R. Addo ◽  
William A. Darity
Keyword(s):  
Middle Class ◽  
Working Class ◽  
Great Recession ◽  
Wealth Inequality ◽  
Net Worth ◽  
The Great Recession ◽  
Consumer Finances ◽  
White Working Class ◽  
Using Data ◽  
The Relationship

What does it mean to be working class in a society of extreme racial wealth inequality? Using data from the Survey of Consumer Finances, we investigate the wealth holdings of Black, Latinx, and white working-class households during the post–Great Recession (pre–COVID-19) period that spanned 2010 to 2019. We then explore the relationship between working-class and middle-class attainment using a wealth-based metric. We find that, in terms of their net worth, fewer Black working-class households benefitted from the economic recovery than white working-class households. Among white households, the working class saw the greatest increase in wealth in both absolute and relative terms. Working-class households were less likely to be middle class as defined by their wealth holdings, and Black and Latinx households were also less likely to be middle class. For Black households, racial identity is a stronger predictor of wealth attainment than occupational sector.

scholarly journals Price-Level Changes and the Redistribution of Nominal Wealth across the Euro Area

2015 ◽  
Vol 14 (4) ◽  
pp. 871-906 ◽  
Author(s):  
Klaus Adam ◽  
Junyi Zhu
Keyword(s):  
Middle Class ◽  
Euro Area ◽  
Price Level ◽  
Household Finance ◽  
Wealth Inequality ◽  
Considerable Heterogeneity ◽  
Wealth Redistribution ◽  
High Inflation ◽  
Per Capita ◽  
Consumption Survey

Abstract We show that unexpected price-level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price-level decreases, with Italy, Greece, Portugal, and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta, and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany, and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs’ inflation exposure varies systematically across countries, with HHs in high-inflation EA countries holding systematically lower nominal exposures.

scholarly journals Inequality, Bipolarization, and Tax Progressivity

2021 ◽  
Vol 13 (4) ◽  
pp. 492-513
Author(s):  
Oriol Carbonell-Nicolau ◽  
Humberto Llavador
Keyword(s):  
Economic Growth ◽  
Income Inequality ◽  
Middle Class ◽  
Wealth Inequality ◽  
Social Stability ◽  
Tax Progressivity ◽  
Tax Systems

The steady rise in income and wealth inequality in the last four decades, together with the evolution of a vanishing middle class, has raised concerns about potentially pernicious effects of these trends on social stability and economic growth. This paper evaluates the possibility of designing tax systems aimed at reducing income inequality and bipolarization. Using two fundamentally different metrics, we provide a unified foundation of tax progressivity whereby, roughly, taxes are progressive if and only if they are inequality reducing; and taxes are inequality reducing if and only if they are bipolarization reducing. (JEL D31, H22, H24)

scholarly journals Credit Demand among Small Farmers: A District Level Approach, Pakistan

2019 ◽  
Vol 9 (1) ◽  
pp. 47-61
Author(s):  
Ali Raza
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Transaction Costs ◽  
Transaction Cost ◽  
Probit Model ◽  
Household Size ◽  
Consumption Smoothing ◽  
Small Farmers ◽  
Qualitative And Quantitative ◽  
Credit Demand

In the current study, determinants of credit demand among small farmers in the Mandi Bahauddin district of Pakistan were investigated. For this purpose, interviews with 123 small farmers in six villages of this district were conducted. Both qualitative and quantitative techniques were used to examine factors that affect credit demands. Seven determinants were devised and tested, and a probit model was employed to analyze the effects of education, household size, and income on the credit demand. Through qualitative methods, factors like informal lending, interest rate, consumption smoothing, and transaction cost were analyzed. It was noted that informal borrowing, higher interest rates, and high transaction costs crowded out formal lending. A positive correlation was observed between education and credit demand. Household size and all types of incomes did not significantly correlate with credit demand.

scholarly journals Difference in Housing Finance Usage and Its Impact on Housing Wealth Inequality in Urban China

Land ◽  
2021 ◽  
Vol 10 (12) ◽  
pp. 1404
Author(s):  
Shan Yu ◽  
Can Cui
Keyword(s):  
Wealth Inequality ◽  
Urban China ◽  
Wealth Accumulation ◽  
Housing Wealth ◽  
Asset Accumulation ◽  
Urban Hierarchy ◽  
Household Asset ◽  
Financing Channels ◽  
Spatial Stratification

With the increasing importance of financial loans in home purchases in urban China, the role of housing loans in the accumulation of housing wealth needs to be unraveled. Using the data from the 2017 China Household Finance Survey (CHFS), this study investigates the use of housing loans and their impact on housing wealth inequality. It has been found that people with higher socioeconomic status and institutional advantages benefit more from housing provident fund loans and are more likely to fully invoke different financing channels to accumulate housing wealth. On the contrary, disadvantaged groups have to resort to costly market-based mortgages to finance their home purchases. This leads them to fall further behind in housing wealth accumulation. The spatial stratification of housing wealth accompanying the urban hierarchy was also observed and found to be closely linked to the type of housing loans. In this increasingly financialized era, relying on financial instruments in the process of household asset accumulation may further amplify the existing wealth inequality among social groups.

scholarly journals International Migration, Livelihood Strategy, and Poverty Cycle

2016 ◽  
Vol 9 (4) ◽  
pp. 113
Author(s):  
Martua Sihaloho ◽  
Ekawati Sri Wahyuni ◽  
Rilus A. Kinseng ◽  
Sediono M.P. Tjondronegoro
Keyword(s):  
Social Class ◽  
Middle Class ◽  
Social Mobility ◽  
Lower Class ◽  
Social Classes ◽  
Upper Class ◽  
Livelihood Strategy ◽  
Poor Households ◽  
Lower Social Class ◽  
Social Climbing

Poverty drove Indonesian poor households (e.g. their family members) to find other livelihoods. One popular choice is becoming an international migrant. This paper describes and analyzes the change in agrarian structure which causes dynamics in agrarian poverty. The study uses qualitative approach and constructivism paradigm. Research results showed that even if migration was dominated by farmer households from lower social class; it also served as livelihood strategy for middle and upper social classes. Improved economics brought dynamics on social reality. The dynamic accesses to agrarian resources consist of (1) horizontal social mobility (means that they stay in their previous social class); (2) vertical social mobility in the form of social climbing; low to middle class, low to upper class, and middle class to upper class; and, (3) vertical social mobility in the form of social sinking: upper class to middle class, upper class to lower class, and middle class to lower class. The dynamic in social classes indicates the presence of agrarian poverty cycle, they are social climbing and sinking.

Impact of Microfinance on Investment Decision and Consumption Smoothing

2018 ◽  
pp. 52-64
Author(s):  
Arundhati Mukherjee ◽  
Ramesh Chandra Das
Keyword(s):  
Investment Decision ◽  
Cost Effective ◽  
Financial Service ◽  
Consumption Smoothing ◽  
Rural Poor ◽  
The Poor ◽  
Poor Households ◽  
Consumption And Saving ◽  
Farming Households

Microfinance has emerged as a powerful tool for poverty alleviation in developing countries. The main objective of microfinance is to provide a cost-effective mechanism for providing financial service to the poor. This chapter attempts to highlight the effect of credit constraints on the productive investment decision of poor households and scope of microfinance in this respect. This chapter promotes the role of microfinance services in consumption smoothing and thus highlights the effect on investment decision of rural poor farming households. As an insured household is motivated to allocate a greater part of its resources away from consumption and saving in favor of investments, this chapter emphasizes the importance of insurance service in product basket of microfinance services.

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