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ERIC Number: ED457303
Record Type: Non-Journal
Publication Date: 2001-Aug
Pages: 46
Abstractor: N/A
Reference Count: N/A
Income Transfers and Assets of the Poor. Revised. Discussion Paper.
Ziliak, James P.
Contrary to the predictions of the standard life-cycle model, many low lifetime-income households accumulate little wealth relative to their incomes compared to households with high lifetime income. This paper uses data from the Panel Study of Income Dynamics and a correlated random-effects generalized model of moments estimator to decompose the rich-poor wealth-to-permanent income gaps into the portions attributable to differences in characteristics such as labor market earnings, income uncertainty, observed demographics, and the use of transfer programs which may have stringent income and liquid-asset tests, and to differences in the estimated coefficients on the respective characteristics. The results suggest that while wealth-to-permanent income ratios are increasing in permanent labor income and income uncertainty, transfer income, with or without asset tests, discourages liquid asset accumulation. The decompositions indicate that most of the rich-poor wealth gap is attributable to differences in average characteristics and not to differences in the degree of responsiveness to incentives and disincentives to save. The leading factor driving the liquid wealth-to-permanent income gap between the rich and poor is asset-tested transfer income, while the primary factor driving the net worth-to-permanent income gap is labor market earnings. The evidence presented suggests that recent state efforts to raise liquid-asset limits for benefit eligibility as part of the 1996 welfare reform act are likely to increase incentives to save and may aid in reducing the liquid wealth-to-permanent income gap between the poor and non-poor. (Contains 52 references.) (SM)
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Publication Type: Reports - Research
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Wisconsin Univ., Madison. Inst. for Research on Poverty.