August 3, 2015 | Refinancing

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2015-059: Mapping Heat in the U.S. Financial System

August 3rd, 2015

David Aikman, Michael T. Kiley, Seung Lee, Michael G. Palumbo, and Missaka N. Warusawitharana. We provide a framework for assessing the build-up of vulnerabilities in the U.S. financial system. We collect forty-four indicators of financial and balance-sheet conditions, cutting across measures of valuation pressures, nonfinancial borrowing, and financial-sector health. We place the data in economic categories, track their evolution, and develop an algorithmic approach to monitoring vulnerabilities that can complement the more judgmental approach of most official-sector organizations. Our approach picks up rising imbalances in the U.S. financial system through the mid-2000s, presaging the financial crisis. We also highlight several statistical properties of our approach: most importantly, our summary measures of system-wide vulnerabilities lead the credit-to-GDP gap (a key gauge in Basel III and related research) by a year or more. Thus, our framework may provide useful information for setting macroprudential policy tools such as the countercyclical capital buffer.

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2015-058: Changes in the Distribution of After-Tax Wealth: Has Income Tax Policy Increased Wealth Inequality?

August 3rd, 2015

Adam Looney and Kevin B. Moore. A substantial share of the wealth of Americans is held in tax-deferred form such as in retirement accounts or as unrealized capital gains. Most data and statistics on assets and wealth is reported on a pre-tax basis, but pre-tax values include an implicit tax liability and may not provide as accurate a measure of the financial position or material well-being of families. In this paper, we describe the distribution of tax-deferred assets in the SCF from 1989 to 2013, provide new estimates of the income tax liabilities implicit in those assets, and present new statistics on the level and distribution of after-tax net worth. The results of our analysis suggest that, relative to published statistics on pre-tax net worth, the distribution of after-tax wealth is slightly less concentrated at each point in time and the effectiveness of the income tax system in reducing wealth inequality has decreased during the last decade. We find the reduction in the long-term capital gains rate is the primary reason for the muted effectiveness of the income tax system in reducing wealth inequality.

Finance News

Millennials are Being Pushed Off the Financial Cliff. It’s Time for Action.

August 3rd, 2015

It’s been well documented that millennials have been financially struggling, but Steven Rattner of the New York Times recently added to a bleak overall financial picture for millennials (18-34 year-olds), in an opinion piece that …

Millennials are Being Pushed Off the Financial Cliff. It’s Time for Action.

[Read the rest of the story at 20somethingfinance.com]

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