Working Papers

with Sylvain Catherine and Natasha Sarin

Red Rock Finance Conference Best Paper Award

Recent influential work finds large increases in inequality in the U.S. based on measures of wealth concentration that notably exclude the value of social insurance programs. This paper revisits this conclusion by incorporating Social Security retirement benefits into measures of wealth inequality. We find that top wealth shares have not increased in the last three decades when Social Security is properly accounted for. This finding is robust to assumptions about how taxes and benefits may change in response to system financing concerns. When discounted at the risk-free rate, real Social Security wealth increased substantially from $4.8 trillion in 1989 to $41.3 trillion in 2016. When we adjust the discount rate for long-run macroeconomic risk, this increase remains sizable, growing from over $3.9 trillion in 1989 to $33.9 trillion in 2016. Consequently, by 2016, Social Security wealth represents 57% of the wealth of the bottom 90% of the wealth distribution.

Presented At: Chicago Annual Household Finance Conference*, EconTwitter Conference*, NBER Summer Institute (CRIW)*, Red Rock Finance Conference*, CEPR European Conference on Household Finance*, Northern Finance Association*, NBER Public Finance*, ASU Sonoran (Scheduled)

Press: Marginal Revolution, Pro-Market, The Economist

*Denotes presentation by co-author

with James Paron and Jessica Wachter

Sovereign debt yields have declined dramatically over the last half-century. Standard explanations for this decline, including aging populations and increases in asset demand from abroad, encounter difficulties when confronted with the full range of evidence across asset classes. We propose instead that the decline in inflation and default risk caused falling interest rates, a phenomenon that is not unique to our century. We show that a model with investment, inventory storage, and sovereign default captures the decline in interest rates, the stability of equity valuation ratios, and the recent reduction in investment and output growth corresponding to the zero lower bound.

Presented At: NBER Summer Institute (Capital Markets), SF Fed Conference on Macro and Monetary Policy (Scheduled)

Periods of democratization exhibit economically large spikes in risk premia. In a panel data set covering 85 countries over 200 years, several proxies for risk premia are significantly elevated during periods of democratization, despite little to no effect on aggregate consumption and dividends. This result is explained in an asset pricing model in which wealthy asset market participants must redistribute their income if democracy consolidates. Finally, in a quasi-natural experiment emanating from a shift in Catholic church doctrine in support of democracy in 1963, average returns were significantly higher for majority Catholic autocracies relative to control countries in a triple difference-in-differences framework. These results are key to understanding how political institutions and the distribution of economic and political power influence asset returns.

Presented At: Econometric Society - European Winter Meeting, Econometric Society World Congress, European Finance Association (Poster Session), MFA (Scheduled)

Publications

Journal of Public Economics (2020)

with Sylvain Catherine and Natasha Sarin

Press: MarketWatch, MarketWatchMarketWatch

Journal of Portfolio Management​ (2020)

with Jonathan Berk and Jules van Binsbergen

FEDS Note (2016)

with Elizabeth Holmquist and Youngsuk Yook

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