Research

Research

Research papers

Household economies of scale for wealth: The benefits of sharing with wealth-in-utility. Job market paper

Abstract Measures of private wealth are often available only at the household or tax-unit level. But how does household wealth map into individual welfare? Analogous to household economies of scale for consumption, I argue that there are economies of scale to household wealth. This paper is the first to offer a methodology and empirical results to account for household wealth scale effects based on wealth-in-utility preferences. I propose economies of scale that differ by accumulation purpose – funding consumption as opposed to holding wealth for status or bequest motives (non-consumption). Presenting estimates of scale effects derived from stated preference data in the German Socio-Economic Panel (SOEP), I find that non-consumption economies of scale are almost perfect. In addition, the paper offers an empirical application to inequality measurement. Since non-consumption wealth matters primarily among wealthy households, adjusting household wealth for size primarily affects less affluent households, feeding into higher estimates of inequality. For example, the Palma ratio for Germany increases by up to 18% once scale effects are taken into account, and the Gini index by 3%. Beyond providing parameter estimates for a wealth-in-utility model with household size, the results have relevant applications in the measurement of inequality and optimal taxation.

The subjective wealth distribution: How it arises and why it matters to inform policy?. (joint with Pirmin Fessler)

Abstract Recently, the influence of income and wealth distribution on aggregate savings receives considerable attention. While most studies have focused on measured income distributions, we emphasize the critical role of individuals’ subjective perceptions in economic decision-making. Our results largely align with standard economic theory, asserting the importance of wealth and (permanent) income for the savings rate. Additionally, our results introduce a potential new dimension: the relevance of an individual’s perceived position within the wealth distribution. Using unique wealth survey data, we uncover a significant bias in self-assessed distributional ranks. Our estimates indicate that descriptively individuals who underestimate their wealth rank have a savings rate approximately 50% higher than those who assess their rank accurately. This robust finding persists in our predictive effects of smaller size (underestimating ones wealth rank by 1 wealth decile goes along with a 0.8 percentage point higher savings rate) even after controlling for wealth and income and a range of household and individual characteristics. To identify a causal effect of 2.3 percentage points per wealth decile underestimation, we introduce a novel Instrumental Variable (IV) approach, leveraging the implementation of a wage transparency law. Importantly, this IV approach is less prone to errors arising from common support issues, as it relies solely on the differences in perceived wealth ranks that are explainable by the policy. Our findings offer valuable insights for contemporary macroeconomic models and contribute to the understanding of how social segregation and information bubbles impact economic decisions, mediated through individual perceptions of relative wealth.

Ongoing projects

Understanding Wealth Inequality: A Probate-Based approach
(joint with Franziska Disslbacher)

Abstract This project delivers the first administrative micro data set for wealth in Austria. We collaborate with local courts to digitise individual-level probate records. In addition to detailed data on individual balance sheets, the probate records also offer rich information on the characteristics of the deceased, as well as the process of intergenerational wealth transmission such as information on wills. We focus on the time period from 2014 to 2019. In contrast to probate records employed in previous research, such as those for Italy and the UK, there is no missing population due to minimum asset thresholds. The data will be used to benchmark survey evidence of wealth inequality in Austria. Beyond that, the data set will allow to study a wide range of research questions related to bequests and intergenerational wealth transmission.

Journal publications

Wealth and Welfare: Do Private and Public Safety Nets Compensate for Asset Poverty?, Social Inclusion, 2023, 11 (1), 176–186.
(joint with Stefan Humer)

Abstract Economic shocks test the resilience of families around the world. Lockdowns, extended periods of unemployment, and inflation challenge the capabilities of private households to maintain their living standards whilst keeping their budgets in balance. Asset poverty is a concept invoked frequently to measure the capacity of private households to mitigate income loss by relying exclusively on their savings. In contrast to conventional asset poverty measures, we quantify the combined cushioning effect of private and public safety nets. Highlighting the importance of public safety nets and familial networks, this paper devises a modified concept of asset poverty: rather than purely simulating a household’s asset decumulation without replacement income, the modified indicator accounts for replacement income in a static setting. The empirical assessment of modified asset poverty in Europe and America combines harmonised microdata on household finances with simulations of institutional rules set by social insurance systems. Our results reveal how differences in social relations and institutional rules shape cross-country variation in the vulnerability of private households. We find that, in contrast to the US where the asset poverty of US families is particularly low, households in most European countries are less vulnerable because generous social security systems coexist with low private assets. However, in some European countries, benefit generosity decreases the longer income losses last, exposing time dynamics in vulnerability. Complementing social insurance mechanisms, in countries such as Greece, households are more likely to receive financial support from family or friends. Cross-national heterogeneity in vulnerability suggests that a shock may have different implications across countries.

Book Chapters

Armut, Soziale Ausgrenzung und Wohnen [Poverty, Social Exclusion and Housing], Soziale Lage und Sozialpolitik in Österreich, 2023, 24. (joint with Karin Heitzmann)

Abstract Against the background of multiple crises, welfare states face increasing challenges in maintaining living standards and combatting poverty. This contribution reviews the evidence with respect to poverty (risk) and homelessness in Austria, while assessing welfare state change in the past decade. It supplements traditional income-based measures with a discussion of material indicators of poverty, and discusses the important role of living costs and housing for the analysis of poverty in particular. Overall, the analysis highlights the need for policy-makers not only to rely on employment as a poverty reduction strategy, but also to ensure wage growth and the provision of basic goods and services to keep the cost of living moderate.

Research reports and other publications

Reichtum, Natur und Wilder Westen [Wealth, Nature and the Wild West], Wirtschaft und Gesellschaft, 2023, 49 (3), 129-133.

Abstract The book "Billionaire Wilderness" by Justin Farrell explores the reasons and consequences of extreme wealth in Teton County, the U.S. county with the highest income inequality. It shows how elites use nature conservation to expand their privileges and adopt romanticized notions of local culture for personal fulfillment. The author emphasizes the importance of nature preservation for wealth accumulation. Additionally, the book sheds light on the psychological conflicts of the super-rich in their quest for authenticity. Interviews with the local population provide contrasting perspectives on the impacts of extreme wealth. Farrell delves into the political and societal institutions that make a region in the "Cowboy State" of Wyoming a magnet for extremely privileged individuals and families, while also outlining potential solutions to mitigate the consequences of inequality.

Asset Bias in Household Needs Measurement, INEQ Working Paper Series, 2021, No. 22

Abstract Increasingly, the estimation of household equivalence scales relies on subjec-tive data. This approach challenges not only traditional methodology, but alsoprovides systematically lower estimates of household needs compared to othermethods. I offer a novel take on this puzzle and argue that the failure to accountfor private wealth in subjective measurement is part of the explanation of whyhousehold financial needs appear to be low. Wealthy survey respondents claimto be satisfied with less income, as they can draw on their asset buffer to main-tain a given living standard. Capitalising on SOEP survey data, I find that thefinancial needs of a household comprising five members relative to a referencehousehold might be underestimated by up to 20% if wealth is not accountedfor. Equivalence scales are central to poverty and inequality measurement, thedesign of social transfer systems and many other applications. Therefore, it iscrucial to account for asset ownership when drawing on estimates that rely onthe subjective methodology.

Vermögen in Wien. Ungleichheit und Öffentliches Eigentum [Wealth in Vienna. Inequality and public ownership], City of Vienna Municipal Department No. 23, 2021
(joint with Robert Lasser, Vanessa Lechinger and Cara Dabrowski)

Abstract The distribution of wealth is a central object of interest in both academics and policy-making. While much research on wealth focuses on the national level, this paper provides insights on the sub-national level, providing evidence on wealth inequality in Vienna in a comparison with other Austrian regions. Based on regionally stratified data from the Austrian Household Finance and Consumption Survey (HFCS), the analysis makes three main contributions. Firstly, in addition to vertical inequality, we explore disparities in household wealth across different types of households and between men and women at the subnational level. Secondly, the paper develops a concept of augmented wealth, which adds housing wealth held by the non-profit sector (municipal housing, housing associations, …) to the private wealth of households that benefit most from it. Lastly, we study the relationship between our measure of augmented wealth and life satisfaction. While overall wealth inequality is much higher than income inequality in Austria, the paper finds that the distribution of wealth is particularly dispersed in Vienna relative to the rest of the country. However, focusing on housing-augmented wealth attenuates the regional differences. When turning to the relationship between housing-augmented wealth and subjective satisfaction outcomes, the article shows a positive association between the augmented component of wealth and life satisfaction. Given the important quantitative implications of our augmented wealth measure in cross-regional comparisons and its association with wellbeing-outcomes, the findings point towards the importance of exploring different concepts of wealth in wealth research.

Kinderkosten - Berechnungsmethoden & Bandbreiten [The cost of children. Methods and bandwidths], City of Vienna Municipal Department No. 40, 2020
(joint with Stefan Humer)

Abstract How much resources do families with children need relative to childless households? Which methods are suitable to measuring such costs of children? These questions are highly relevant, not at least when it comes to calibrating the generosity of public transfers, such as means-tested minimum income schemes. This paper reviews the vast literature on the cost of children and equivalence scales, highlighting the blind spots of scholarship and summarising the empirical estimates of child-costs in Austria. We begin with an assessment of a number of methods applied to compute the costs of children, showing that no single approach outperforms the others in all dimensions. In view of their theoretical foundations, the most popular approaches in Austria are subject to criticism in the international literature. Given the broad variety of methods, we argue that the purpose of the analysis is crucial to the choice of the methodological approach. The costs of children computed for assisting prospective families with their financial planning will be an ill-suited evidence-base for the design minimum income schemes. The meta-analysis of the costs of children in Austria suggests that the needs of the first child range between one and two thirds of an adult’s needs. At the same time, the evidence for the existence of economies of scale is ambiguous. Constructing bandwidths for child costs shades the diversity of the results, shaped by different methodological approaches. Deriving costs in currency units crucially depends on the assumptions made regarding the reference value of the needs of childless households. Looking forward, our results point out that future attempts to compute the costs of children should pay particular attention to capturing the living conditions of single households, multigenerational households and patchwork families. At the same time, research needs to address the heterogeneous needs of households along the income distribution. Lastly, scholarship should consider how to combine approaches and synthesise results appropriately to produce more accessible and user-friendly statistics.

Entwicklung und Verteilung von Lebenshaltungskosten in Österreich [Development and distributional impact of inflation], Austrian Federal Ministry for Work, Social Affairs, Health and Consumer Protection, 2018
(joint with Stefan Humer)