Finance, Wealth and Assets

Income inequality and worker migration significantly affect sovereign default risk. Governments often impose progressive taxes to reduce inequality, which redistribute income but discourage labor supply and induce emigration. Reduced labor supply and a smaller high-income workforce erode the current and future tax base, reducing government's ability to repay debt. I develop a sovereign default model with endogenous nonlinear taxation and heterogeneous labor to quantify this effect. In the model, the government chooses the optimal combination of taxation and debt, considering its impact on workers' labor and migration decisions. Income inequality accounts for one-fifth of the average US state government spread.

We develop Generational Wealth Accounts (GWA): the first set of balance sheets, by generations, to include all human capital, tangible wealth, financial wealth, and transfer wealth, and the uses to which these are put, and employ them to quantify inter-generational transfers and the sustainability of consumption. Consumption plans in the UK public sector worsened over the financial crisis and are unsustainable; private sector plans improved, and are now almost balanced. Increases in private capital transfers to the young offset the effect of increased public debt. House price increases shifted resources from young to old but had little effect on sustainability.

We use detailed data on stock portfolios of Norwegian households to show that stock market wealth increases entrepreneurship activity. Our research design isolates idiosyncratic, quasi-random variation in stock market returns. An increase in stock market wealth increases the propensity to start a firm, with the response concentrated in households with moderate levels of financial wealth, for whom a 20 percent increase in stock wealth increases the likelihood to start a firm by about 20%, and in years when the aggregate stock market return in Norway is high. We develop a method to study the effect of wealth on firm outcomes that corrects for the bias introduced by selection into entrepreneurship. An increase in stock market wealth also has a causal effect on initial firm size and profitability. The pass-through from stock wealth into equity in the new firm is one-for-one, indicating that higher stock market wealth relaxes would-be entrepreneurs' financial constraints.

The use of machine learning in credit allocation should allow lenders to better extend credit, but the shift from traditional to machine learning lending models may have important distributional effects for consumers. This paper analyzes the effect of machine learning on mortgage lending in the US.

This paper studies whether higher within-firm pay inequality is driven by managerial talent or managerial rent extraction and whether, ultimately, firms with larger pay disparities have lower valuations.

In the wake of the Global Financial Crises (GFC), the GDP of most countries failed to recover and catch up with its previous trend. This paper studies the cause of the boom that preceded the crisis and ask whether it was sustainable, or even desirable in the first place.

For entrepreneurs and small business owners, housing is an important source of collateral for business loans. This paper explores the implications of changes in house prices for this sort of borrowing and for firm-level outcomes.