Jane Yoo (CV)
Ajou University, South Korea
Wealth Distribution, Macro-Finance, Public Finance
This paper studies the welfare aspects of inter vivos giving in a dynamic general equilibrium. Although the intergenerational transfer made by a living parent to a liquidity-constrained child is easily found, the welfare aspects of this inter vivos giving have not been widely studied. An applied life-cycle model built on the observed pattern from the micro data can explain the substantial difference in wealth between a recipient and a non-recipient. After comparing the age-wealth distribution produced in a model economy to the corresponding distribution in the US economy, this paper investigates how individual welfare is influenced when giving is encouraged by elimination of the gift tax in the steady-state. The model shows that lowering the gift tax rate is Pareto-improving in the long run by achieving higher average consumption, a smoother lifetime consumption path and an increase in saving.
The Role of Inter Vivos Giving in Life-cycle Economies
This chapter examines Pareto-improving aspects of inter vivos giving by studying an applied life-cycle model built on the observed features of the giving. The main modifications adopted in the model are a relative weight on the utility from making the giving and a borrowing-restriction. Having assessed the welfare effect of lowering the gift tax rate inducing more inter vivos giving by parents, the elimination of a gift tax shows Pareto-improvement from higher average consumption with more saving. The wealth effect contributes to an increase in the capital stock and output in the steady state. The welfare improving aspects of giving are emphasized by its role in the smoother lifetime consumption and in the wealth effect which generates the welfare gains to every generation by transmitting the lower probability of being liquidity-constrained in young periods to higher saving. If one's goal is to realize the efficiency gain from taxing inter vivos giving, the model suggests that the current tax system makers need to understand the prominent role of the gift in the steady state because there is a greater marginal gain from transferring money from the old to the young whose marginal saving propensity is high even though an individual decreases the labor supply when young instead of increasing it when middle-aged.
In this paper I develop an empirical model to help identify the ability and willingness of prospective borrowers to repay their debts on the basis of historical information about consumers with similar quantifiable characteristics. In assessing the predictability of indicators by their correlation with the probability of delinquency, this model establishes a robust pre-screening tool monitoring whether a consumer may be slipping into a bankrupt state. Besides ranking prospective borrowers' repayment ability, the approach proposes which fundamental's misalignment is more likely to result in a consumer's insolvency. A key finding is that the student loan to income ratio, the debt to income ratio, and the amount saved in checking accounts are important indicators in monitoring consumer vulnerabilities. When assessing each cohort by the composite index, this paper finds that the young generation is more likely to default.
Gift Tax: From the new dynamic public finance approach
Mirreleasian Bankruptcy Choice
Fall 2012: I120 Financial Management: Syllabus
School of Business, Ajou University
Fall 2012: FE610 Econometrics in Finance: Syllabus
Department of Financial Engineering, School of Business, Ajou University
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