A Collection of Surveys on Savings and Wealth Accumulation EDITED BY Edda Claus and Iris Claus www.ebook3000.com A Collection of Surveys on Savings and Wealth Accumulation www.ebook3000.com A Collection of Surveys on Savings and Wealth Accumulation Edited by Edda Claus and Iris Claus www.ebook3000.com This edition first published 2016 Chapters © 2016 The Authors Book compilation © 2016 John Wiley & Sons Ltd Originally published as a special issue of the Journal of Economic Surveys (Volume 29, Issue 4) Blackwell Publishing was acquired by John Wiley & Sons in February 2007 Blackwell’s publishing program has been merged with Wiley’s global Scientific, Technical, and Medical business to form Wiley-Blackwell Registered Office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom Editorial Offices 350 Main Street, Malden, MA 02148-5020, USA 9600 Garsington Road, Oxford, OX4 2DQ, UK The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, UK For details of our global editorial offices, for customer services, and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com/wiley-blackwell The rights of Edda Claus and Iris Claus to be identified as the authors of the editorial material in this work have been asserted in accordance with the UK Copyright, Designs and Patents Act 1988 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is sold on the understanding that the publisher is not engaged in rendering professional services If professional advice or other expert assistance is required, the services of a competent professional should be sought Library of Congress Cataloging-in-Publication Data applied for 9781119158387 (paperback) Cover design: GettyImages / © Balefire9 GettyImages / © Sergey Nivens A catalogue record for this book is available from the British Library Set in 10/12pt Times by Aptara Inc., New Delhi, India 2016 CONTENTS Savings and Wealth Accumulation: Measurement, Influences and Institutions Edda Claus and Iris Claus Recent Developments in Consumer Credit and Default Literature Igor Livshits Student Debt Effects on Financial Well-Being: Research and Policy Implications 33 William Elliott and Melinda Lewis Islamic Banking and Finance: Recent Empirical Literature and Directions for Future Research 59 Pejman Abedifar, Shahid M Ebrahim, Philip Molyneux and Amine Tarazi Wealth Inequality: A Survey 93 Frank A Cowell and Philippe Van Kerm Defining the Government’s Debt and Deficit 139 Timothy C Irwin Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research 163 William L Megginson and Veljko Fotak Genuine Savings and Sustainability 213 Nick Hanley, Louis Dupuy and Eoin McLaughlin Savings in Times of Demographic Change: Lessons from the German Experience 245 Axel Băorsch-Supan, Tabea Bucher-Koenen, Michela Coppola and Bettina Lamla 10 Economic Determinants of Workers’ Retirement Decisions 271 Courtney C Coile Index 297 www.ebook3000.com SAVINGS AND WEALTH ACCUMULATION: MEASUREMENT, INFLUENCES AND INSTITUTIONS1 Edda Claus Wilfrid Laurier University and CAMA Iris Claus International Monetary Fund and University of Waikato The financial crisis and the Great Recession demonstrated, in a dramatic and unmistakable manner, how extraordinarily vulnerable are the large share of American families with very few assets to fall back on (J L Yellen, 2014)2 We tend to not think about savings and wealth accumulation when times are good and incomes are rising But when income growth stops and rainy days arrive, savings and wealth jump back to the forefront of our minds, as individuals, policy makers and researchers Developments over the past twenty-five years are a case in point During the boom years of the 1990s and early 2000s, incomes grew rapidly reflecting sustained high growth rates of economic activity and an unprecedented rise in commodity prices Furthermore, historically low interest rates in many advanced economies reduced the return on savings and lowered the cost of borrowing, contributing to higher household consumption and indebtedness and low savings rates.3 Savings rates, measured as the difference between income and consumption, have not only been low and indebtedness rising at the household level, but also at the country level, demonstrated by large and sustained current account deficits and rising debt in many advanced economies When the boom ended with the onset of the global financial crisis in 2007, it became clear that much of the wealth created over the previous two decades was all but on paper and individuals and countries had very few assets to fall back on Chair Yellen’s quote at the beginning of this article is applicable not only to American families but to families and governments around the world The lack of assets has played an important part in the painfully slow economic recovery post crisis Consumers have been hesitant about spending and high government indebtedness has raised concerns about debt sustainability This has hindered A Collection of Surveys on Savings and Wealth Accumulation, First Edition Edited by Edda Claus and Iris Claus Chapters © 2016 The Authors Book compilation © 2016 John Wiley & Sons, Ltd Published 2016 by John Wiley & Sons, Ltd www.ebook3000.com CLAUS AND CLAUS fiscal expansions and worsened the economic downturn through a full blown sovereign debt crisis in Europe Moreover, many countries, some high and some medium income economies, are experiencing a demographic transition with an aging population and falling fertility rates, raising concerns about the adequacy of people’s retirement savings and the sustainability of public pension funds It is therefore high time that we turn our attention to savings and wealth accumulation, which is the theme of this book The nine papers presented here critically review topical issues in the recent policy and research debates ranging from the effects of access to credit, the rise of Islamic finance and sovereign wealth funds, the measurement of wealth inequality and genuine savings, the distribution of wealth across generations and retirement savings A fundamental principle in economics is that of utility maximization–each period people choose a bundle of consumption goods and services, including leisure, to maximize lifetime utility The way in which people maximize lifetime utility, which represents their preferences over goods and services, is by ensuring a balance between consumption and savings during the different phases of their life Generally people prefer stable levels of consumption to large variations, meaning that similar levels of consumption today, tomorrow and the day after are preferred to a pattern that more closely matches a person’s lifetime income of no or low income when young and when retired and high earnings during working years This desire to smooth consumption and maintain accustomed living standards typically leads to three stages of savings and wealth accumulation during the lifetime of an individual The first stage is a period of dis-savings or borrowing in early adulthood that is marked by post-secondary education expenditures, low income and debt accumulation The second stage is a period of savings when income is high and assets are accumulated The third stage again is a period of dis-savings and a decline in assets during retirement when earnings are low Access to credit is an essential tool for consumption smoothing and the topic of the first two articles in this book The first article by Igor Livshits (2015) reviews “Recent developments in consumer credit and default literature.” Consumer credit rose sharply during the 1980s but this increase in personal debt coincided with an acceleration in bankruptcy filings in the United States and other countries with personal bankruptcy systems The dramatic rise in household indebtedness and default raised concerns with policy makers and became a focus of attention for economists seeking to understand the driving forces behind them Since then the quantitative literature on unsecured consumer debt and default has made great strides In the basic model of default the key assumption is that borrowers face an interest rate that is a function of the amount borrowed and that includes a risk premium–the risk premium reflects the probability of default and is also a function of the amount borrowed Underlying the design of bankruptcy systems is a basic tradeoff between the partial insurance of being able to walk away from debts (i.e., greater ability to smooth consumption across states of the world) and the inability to commit to repaying loans in future, which makes borrowing more expensive and reduces the scope for consumption smoothing over time There are four possible explanations for the rise in personal bankruptcies and consumer credit The first is increased risk exposure of borrowers: Existing borrowers face more adverse shocks The second is increased risk exposure of lenders: Lenders advance loans to riskier borrowers The third explanation is compositional changes in the population and the fourth is greater willingness of borrowers to file for bankruptcy The empirical evidence reviewed by Livshits suggests that the rise in personal bankruptcies and consumer credit was due to two reinforcing factors: a decline in the cost of bankruptcy and a decline in the cost of lending as a result of interest 292 COILE Blau, D.M (1994) Labor force dynamics of older men Econometrica 62(1): 117–156 Blau, D.M and Gilleskie, D (2006) Health insurance and retirement of married couples Journal of Applied Econometrics 21(7): 935–953 Blinder, A., Gordon, R and Wise, D (1978) An empirical study of the effect of pensions and the saving and labor supply of older men Report submitted to the U.S Department of Labor Băorsch-Supan, A (1992) Population aging, social security design, and early retirement Journal of Institutional and Theoretical Economics 148(4): 533557 Băorsch-Supan, A., Schnabel, R., Kohnz, S and Mastrobuoni, G (2004) Micro-modeling of retirement decisions in Germany In J Gruber and D.A Wise (eds.), Social Security Programs and Retirement Around the World: Micro-Estimation Chicago: University of Chicago Press Băorsch-Supan, A and Schnabel, R (1998) Social security and declining labor-force participation in Germany American Economic Review 88(2): 173–178 Bound, J (1991) Self-reported objective measures of health in retirement models Journal of Human Resources 26: 103–138 Bound, J., Schoenbaum, M., Stinebrickner, T.R and Waidmann, T (1999) The dynamic effects of health on the labor force transitions of older workers Labour Economics 6(2): 179–202 Bound, J and Waidmann, T (2007) Estimating the health effects of retirement Michigan Retirement Research Center Working Paper, pp 2007–2168, University of Michigan Brown, J.R., Coile, C.C and Weisbenner, S.J (2010) The effect of inheritance receipt on retirement The Review of Economics and Statistics 92(2): 425–434 Brown, J.R., Kapteyn, A and Mitchell, O.S (2013) Framing and claiming: how informationframing affects expected social security claiming behavior Journal of Risk and Insurance doi: 10.1111/j.1539-6975.2013.12004.x Brown, J.B., Liebman, J.B and Pollet, J (2002) Estimating life tables that reflect socioeconomic difference in mortality In M Feldstein and J.B Liebman (eds.), The Distributional Aspects of Social Security and Social Security Reform (pp 447–357) Chicago: University of Chicago Press Burkhauser, R.V and Quinn, J.F (1983) Is mandatory retirement overrated? Evidence from the 1970s Journal of Human Resources 18(3): 337–358 Burtless, G and Moffitt, R (1986) Social security, earnings tests, and age at retirement Public Finance Quarterly 14: 3–27 Cahill, K.E., Giandrea, M.D and Quinn, J.F (2015) Retirement Patterns and the Macroeconomy, 1992– 2010: the prevalence and determinants of bridge jobs, phased retirement, and reentry among three recent cohorts of older Americans Gerontologist 55(3): 384–403 Cahill, K.E., Giandrea, M.D and Quinn, J.F (2013) Bridge jobs In M Wang (ed.), The Oxford Handbook of Retirement Oxford: University of Oxford Press Cahill, K.E., Giandrea, M.D and Quinn, J.F (2011) Reentering the labor force after retirement Monthly Labor Review 134(6): 34–42 Chan, S and Stevens, A.H (2001) Job loss and employment patterns of older workers Journal of Labor Economics 19(2): 484–521 Charles, K (2004) Is Retirement Depressing? Labor Force Inactivity and Psychological Well-Being in Later Life Research in Labor Economics 23: 269–299 Clark, R.L., Ogawa, N., Sang-Hyop, L and Matsukura, R (2008) Older workers and national productivity in Japan Population and Development Review 34: 257–274 Coile, C.C (2004) Retirement incentives and couples’ retirement decisions B.E Press Journal of Economic Analysis & Policy 4(1): 1–30 Coile, C., Diamond, P., Gruber, J and Jousten, A (2002) Delays in claiming social security benefits Journal of Public Economics 84(3): 357–385 Coile, C.C and Gruber, J (2001) Social Security incentives for retirement In D.A Wise (ed.), Themes in the Economics of Aging, Chicago: University of Chicago Press Coile, C.C and Gruber, J (2007) Future social security entitlements and the retirement decision Review of Economics and Statistics 89(2): 234–246 ECONOMIC DETERMINANTS OF WORKERS’ RETIREMENT DECISIONS 293 Coile, C.C and Levine, P.B (2011a) The market crash and mass layoffs: how the current economic crisis may affect retirement B.E Press Journal of Economic Analysis & Policy 11(1): 1–22 Coile, C.C and Levine, P.B (2011b) Recessions, retirement, and social security American Economic Review 101(3): 23–28 Coile, C.C and Levine, P.B (2007) Labor market shocks and retirement: government programs matter? Journal of Public Economics 91(10): 1902–1919 Coile, C.C and Levine, P.B (2006) Bulls, bears, and retirement behavior Industrial and Labor Relations Review 59: 408–429 Coile, C.C., Levine, P.B and McKnight, R (2014) Recessions, older workers, and longevity: how long are recessions good for you? American Economic Journal: Economic Policy 6(3): 92–119 Coile, C.C., Milligan, K.S and Wise, D.A (2014) Introduction and summary In D.A Wise (ed.), Social Security Programs and Retirement Around the World: Disability Insurance Programs and Retirement, Chicago: University of Chicago Press Coile, C.C., Milligan, K.S and Wise, D.A (forthcoming) Introduction and Summary In D.A Wise (ed.), Social Security Programs and Retirement Around the World: The Capacity to Work at Older Ages Chicago: University of Chicago Press Congressional Budget Office (2006) Is Social Security Progressive? Economic and Budget Issue Brief, December Congressional Budget Office (2014) An Update to the Budget and Economic Outlook: 2014 to 2024 Pub No 5005, August Coronado, J and Perozek, M (2003) Wealth Effects and the Consumption of Leisure: Retirement Decisions During the Stock Market Boom of the 1990s Board of Governors of the Federal Reserve System Finance and Economics Discussion Series no 2003–20 Costa, D.L (1998) The Evolution of Retirement: An American Economic History, 1880–1990 Chicago: University of Chicago Press Coy, P (2014) American workers are older than ever Bloomberg Business Week, August Available at: http://www.businessweek.com/articles/2014-08-04/a-record-22-dot-2-percent-of-ofu-dot-s-dot-workers-are-55-or-older (Last accessed July 9, 2015) Crawford, V.P and Lilien, D.M (1981) Social security and the retirement decision Quarterly Journal of Economics 96(3): 506–529 Cutler, D.M., Ghosh, K and Landrum, M.B (2014) Evidence for significant compression of morbidity in the elderly U.S population In D.A Wise (ed.), Discoveries in the Economics of Aging Chicago: University of Chicago Press Diamond, P and Hausman, J (1984) The retirement and unemployment behavior of older men In G Burtless and H Aaron (eds.), Retirement and Economic Behavior Wa shington, DC: Brookings Institution Press Disney, R., Emmerson, C and Wakefield, M (2006) Ill health and retirement in Britain: A panel data-based analysis Journal of Health Economics 25(4): 621–649 Disney, R and Smith, S (2002) The labor supply effect of the abolition of the earnings rule for older workers in the United Kingdom Economic Journal 112(478): C136–C152 Dorn, D and Sousa-Poza, A (2008) ‘Voluntary’ and ‘involuntary’ early retirement: an international analysis,” Applied Economics 42(4): 427–438 Dwyer, D and Mitchell, O.S (1999) Health problems as determinants of retirement: are self-rated measures endogenous? Journal of Health Economics 18(2): 173–193 Euwals, R and VanVuuren, D.J and Wolthoff, R.P (2010) Early retirement behavior in the Netherlands: evidence from a policy reform De Economist 158(3): 209–236 Farber, H.S (2011) Job loss in the great recession: historical perspective from the displaced workers survey, 1984–2010 NBER Working Paper #17040, National Bureau of Economic Research Finklestein, A and Poterba, J (2004) Adverse selection in insurance markets: policyholder evidence from the U.K annuity market Journal of Political Economy 112(1): 183–208 www.ebook3000.com 294 COILE French, E (2005) The effects of health, wealth, and wages on labor supply and retirement behavior The Review of Economic Studies 72(2): 395–427 French, E and Jones, J.B (2011) “The Effects of Health Insurance and Self-Insurance on Retirement Behavior,” Econometrica 79(3): 693–732 Friedberg, L (2000) The labor supply effects of the social security earnings test Review of Economics and Statistics 82(1): 48–63 Friedberg, L (2001) The impact of technological change on older workers, evidence from data on computer use Industrial and Labor Relations Review 56(3): 511–529 Friedberg, L and Webb, A (2005) Retirement and the evolution of the pension structure Journal of Human Resources 40(2): 281–308 Gern, K.-J (2002) Recent developments in old age pension systems: an international overview In M Feldstein and H Siebert (eds.), Social Security Pension Reform in Europe, Chicago: University of Chicago Press Goldin, C (2006) The quiet revolution that transformed women’s employment, education, and family American Economic Review 92(2): 1–21 Gruber, J and Madrian, B (1996) Health insurance and early retirement: evidence from the availability of continuation coverage In D.A Wise (ed.), Advances in the Economics of Aging Chicago: University of Chicago Press Gruber, J and Orszag, P (2003) Does the social security earnings test affect labor supply and benefits receipt? National Tax Journal 56(4): 755–773 Gruber, J and Wise, D.A (1999) Introduction and summary In J Gruber and D.A Wise (eds.), Social Security and Retirement Around the World (pp 1–35) Chicago: University of Chicago Press Gruber, J and Wise, D.A (2004) Social Security Programs and Retirement Around the World: Microestimation Chicago: University of Chicago Press Gustman, A.L and Steinmeier, T.L (1986) A structural retirement model Econometrica 54(3): 555– 584 Gustman, A.L and Steinmeier, T.L (2000) Retirement in dual-career families: a structural model Journal of Labor Economics 18(3): 503–545 Gustman, A.L and Steinmeier, T.L (2005) The social security early entitlement age in a structural model of retirement and wealth Journal of Public Economics 89(2–3): 441–463 Gustman, A.L and Steinmeier, T.L (2008) Projecting behavioral responses to the next generation of retirement policies Research in Labor Economics 28: 141–196 Gustman, A.L, Steinmeier, T.L and Tabatabai, N (2010) What the stock market decline means for the financial security and retirement choices of the near-retirement population Journal of Economic Perspectives 24(1): 162–181 Haider, S.J and Loughran, D.S (2008) The effect of the social security earnings test on male labor supply Journal of Human Resources 43(1): 57–87 Hallberg, D (2011) Economic fluctuations and retirement of older employees Labour 25(3): 287–307 Hausman, J and Wise, D (1985) Social security, health status, and retirement In D Wise (ed.), Pensions, Labor, and Individual Choice (pp 159–192), Chicago: University of Chicago Press Hellerstein, J.K., Neumark, D and Troske, K (1999) Wages, productivity and worker characteristics: evidence from plant-level production functions and wage equations Journal of Labor Economics 17(3): 409–446 Hurd, M.D (1990) The joint retirement decision of husbands and wives In D.A Wise (ed.), Issues in the Economics of Aging (pp 231–258) Chicago: University of Chicago Press Hurd, M.D., Smith, J.P and Zissimopoulos, J (2004) The effects of subjective survival on retirement and social security claiming Journal of Applied Econometrics 19(6): 761–775 Hurd, M.D., Reti, M and Rohwedder, S (2009) The effect of large capital gains or losses on retirement In D.A Wise (ed.), Developments in the Economics of Aging (pp 127–171) Chicago: University of Chicago Press ECONOMIC DETERMINANTS OF WORKERS’ RETIREMENT DECISIONS 295 Hutchens, R.M (1986) Delayed Payment Contracts and a Firm’s Propensity to Hire Older Workers, Journal of Labor Economics 4(4): 439–457 Hutchens, R.M (1989) Seniority, wages, and productivity: a turbulent decade Journal of Economic Perspectives 3(4): 49–64 Imbens, G.W., Rubin, D.B and Sacerdote, B (1999) Estimating the effect of unearned income on labor earnings, savings, and consumption: evidence from a survey of lottery players American Economic Review 91(4): 778–794 Johnston, D.W and Lee, W.-S (2009) Retiring to the good life? The short-term effects of retirement on health Economic Letters 103(1): 8–11 Kalwij, A and Vermeulen, F (2008) Health and labour force participation of older people in Europe: what objective health indicators add to the analysis Health Economics 17(5): 619–638 Kerkhofs, M., Lindeboom, M and Theeuwes, J (1999) Retirement, financial incentives, and health Labour Economics 6(2): 203–227 Krueger, A.B and Pischke, J.-S (1992) The effect of social security on labor supply: a cohort analysis of the notch generation Journal of Labor Economics 10(4): 412–437 Lahey, J.N (2008a) Age, women, and hiring: an experimental study Journal of Human Resources 43(1): 30–56 Lahey, J (2008b) State age protection laws and the age discrimination in employment act Journal of Law and Economics 51(3): 433–460 Lazear, E.P (1979) Why is there mandatory retirement? Journal of Political Economy 87(6): 1261– 1284 Lazear, E.P (1983) Pensions as severance pay In Z Bodie and J.B Shoven (eds.), Financial Aspects of the United States Pension System (pp 57–90) Chicago: University of Chicago Press Leimer, D.R (1999) Lifetime redistribution under the social security program: a literature synopsis Social Security Bulletin 62(2): 43–51 Leonesio, M.V., Bridges, B., Gesumaria, R and Bene, L.D (2012) The increasing labor force participation of older workers and its effect on the income of the aged Social Security Bulletin 72(1): 59–77 Liebman, J.B (2002) Redistribution in the current U.S social security system In M Feldstein and J.B Liebman (eds.), The Distributional Aspects of Social Security and Social Security Reform (pp 11–48) Chicago: University of Chicago Press Liebman, J.B and Luttmer, E.F.P (2015) Would people behave differently if they better understood social security? Evidence from a field experiment American Economic Journal: Economic Policy 7(1): 275–299 Liebman, J.B., Luttmer, E.F.P and Seif, D (2009) Labor supply responses to marginal social security benefits: evidence from discontinuities Journal of Public Economics 93(11–12): 1208–1223 Lumsdaine, R and Wise, D (1994) Aging and labor force participation: a review of trends and explanation In Y Noguchi and D Wise (eds.), Aging in the United States and Japan: Economic Trends Chicago: University of Chicago Press Madrian, B., Burtless, G and Gruber, J (1994) The effect of health insurance on retirement Brookings Papers on Economic Activity 1994(1): 181–252 Maestas, N (2001) Labor, Love, and Leisure: Complementarity and the Timing of Retirement by Working Couples Berkeley: U.C Berkeley Maestas, N (2010) Back to work: expectations and realizations of work after retirement Journal of Human Resources 45(3): 718–748 Manoli, D.S and Weber, A (2011) Nonparametric evidence on the effects of financial incentives on retirement decisions NBER Working Paper No 17320, August, National Bureau of Economic Research Mastrobuoni, G (2009) Labor supply effects of the recent social security benefit cuts: empirical estimates using cohort discontinuities Journal of Public Economics 93(11–12): 1224–1233 www.ebook3000.com 296 COILE McClellan, M.B (1998) Health events, health insurance, and labor supply: evidence from the health and retirement survey In D.A Wise (ed.), Frontiers in the Economics of Aging (pp 301–349) Chicago: University of Chicago Press Mitchell, O.S and Fields, G.S (1982) The effects of pensions and earnings on retirement In Research in Labor Economics, Vol Greenwich, Connecticut: JAI Press Munnell, A.H (2014) The impact of aging baby boomers on labor force participation: A review Center for Retirement Research Issue Brief 14–4: 115–155 Munnell, A.H (2006) Employer-sponsored plans: the shift from defined benefit to defined The Oxford Handbook of Pensions and Retirement Income 13: 359–380 Neumark, D and Stock, W.A (1999) Age discrimination laws and labor market efficiency Journal of Political Economy 107:1081–1125 Quinn, J.F and Burkhauer, R.V (1993) Influencing retirement behavior: a key issue for social security Journal of Policy Analysis and Management 3(1): 1–13 Rogowski, J and Karoly, L (2000) Health insurance and retirement behavior: evidence from the health and retirement survey Journal of Health Economics 19(4): 529–539 Rust, J and Phelan, C (1997) How social security and Medicare affect retirement behavior in a world of incomplete markets Econometrica 65(4): 781–831 Samwick, A.A (1998) New evidence on pensions, social security, and the timing of retirement Journal of Public Economics 70(2): 207–236 Sanzenbacher, G.T (2014) What we know about health reform in Massachusetts Center for Retirement Research Issue Brief 14–19 Sevak, P (2001) Wealth shocks and retirement timing: evidence from the nineties Michigan Retirement Research Center Working Paper no WP00D1, University of Michigan Shirbekk, V (2004) Age and individual productivity: a literature survey Vienna Yearbook of Population Research 2: 133–153 Shoven, J and Slavov, S (2014) Does it pay to delay social security? Journal of Pension Economics and Finance 13(2): 121–144 Song, J and Manchester, J (2007) Have people delayed claiming retirement benefits? Responses to changes in social security rules Social Security Bulletin 67(2): 1–23 Snyder, S.E and Evans, W.N (2006) The effect of income on mortality: evidence from the social security notch The Review of Economics and Statistics 88(3): 482–495 Staubli, S and Zweimuller, J (2012) Does raising the retirement age increase employment of older workers? University of Zurich Department of Economics Working Paper 20 Stock, J and Wise, D (1990a) Pensions, the option value of work, and retirement Econometrica 58: 1151–1180 Stock, J and Wise, D (1990b) The pension inducement to retire: an option value analysis In D.A Wise (ed.), Issues in the Economics of Aging (pp 205–229) Chicago: University of Chicago Press Sullivan, D and Wachter, T.V (2009) Job displacement and mortality: an analysis using administrative data The Quarterly Journal of Economics 124(3): 1265–1306 U.S Department of Labor, Employee Benefits Security Administration (2014) Private Pension Plan Bulletin Historical Tables and Graphs, September Available at http://www.dol.gov/ebsa/pdf/ historicaltables.pdf, accessed January 2, 2015 Vander Klaauw, W and Wolpin, K.I (2008) Social security and the retirement and savings behavior of low-income households Journal of Econometrics 145(1): 21–42 VonWachter, T (2002) The End of Mandatory Retirement in the US: Effects on Retirement and Implicit Contracts Berkeley: Center for Labor Economics, University of California INDEX Absolute Gini coefficient 105 absolute Lorentz curve 100, 103 Abu Dhabi Investment Authority (ADIA) 167–169, 175 accrual accounting 149–150 Accumulating Savings and Credit Associations (ASCRAs) 84 ad¯adith 72 Adjusted Net Savings 213 Age Discrimination in Employment Act (ADEA) 287–288 age-adjusted wealth inequality measures 115–118 American Dream 33–34 financial comparisons 40–41 asset accumulation effects of debt 37 student debt 40–41 asset and liability valuation 151–152 asset-liability management (ALM) 181 assets 95, 147, 153 asymmetric information 15–16 augmented unsustainability test 222 Australia investments 192 Austria Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 average indexed monthly earnings (AIME) 290 baby-boomer generation 14 bachelor’s degree, rate of return 34 Bahrain banking issues 76 empirical evidence from Islamic finance 80, 83 performance of Islamic banks versus conventional banks 65 risks in Islamic banking 71 Bangladesh banking issues 76 risks in Islamic banking 71 banking deregulation 14 bankruptcies 9–10 basic models 10–11 challenges going forward 22–23 collection of debts 19 cyclical behavior of credit and bankruptcy 21–22 delinquency 19, 21 informal 20 intermediation costs 13, 14 mechanisms 11 model principles 9–10 protection 19 renegotiation of loan 19, 21 stigma of 13, 14 threat of default 10 tradeoffs 11–13 USA bankruptcies, rise in 2–3 consumer credit 13–15 precautionary savings 11 uncertainty of income 14 welfare implications 17–19 Belgium Household Finance and Consumption Survey (HFCS) 96 A Collection of Surveys on Savings and Wealth Accumulation, First Edition Edited by Edda Claus and Iris Claus Chapters © 2016 The Authors Book compilation © 2016 John Wiley & Sons, Ltd Published 2016 by John Wiley & Sons, Ltd www.ebook3000.com 298 INDEX Belgium (Continued) household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 benchmarks (B/Ms) of legitimacy 179 Benford’s law 150 boom–bust cycles 284 borrowing constraint 11 budgetary central government 142 Canada economics of higher education 36, 44 government debt 139, 148 capabilities-based definition 214 capabilities-based sustainability 215–218 career choices 37 Carter, Jimmy 36 cash accounting cash and accrual accounting 149–150 central government 142 Children’s Savings Accounts (CSAs) 46 Chile 170 China investments 191, 192 China Investment Corporation (CIC) 171 Cobb–Douglas production function 218 coefficient of variation 104 collection of debts 19 college degree, rate of return 34 comprehensive accounts 4, 147, 155–156 Comprehensive Investment 213 Comprehensive Wealth 217 concentration curves 126 constant capital prices 220 consumer credit 2–3, 10, 13–15 changes driving bankruptcy rises 14 consumer spending contingent claims analysis (CCA) 178, 181 corporate social responsibility (CSR) disclosure 73 creative accounting 142 credit access 2, 3–4 credit card debt 20 credit default swap (CDS) spreads 197, 199, 201 credit scoring 13, 15 students 39–40 cross-border sovereign wealth fund (SWF) investments 171–172 current consumption 98 Current Population Survey (CPS) 274 cyclical behavior of credit and bankruptcy 21–22 Cyprus Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Dagum Type I distribution 111–112, 113 Data Envelope Analysis (DEA) 63 debt, defining 146–156 debt collection 19 debt–deficit residuals asset and liability valuation 151–152 stock and flow reconciliation 150–151 debt restructuring 21 default equilibrium model 10, 12–13 default on loans ex ante tradeoff 11 threat of 10 deficit, defining 146–156 defined benefit (DB) pensions 126, 278, 280, 289 defined contribution (DC) pensions 126, 279, 280, 289 delinquency in default 19, 21 democratization of credit 12, 15 demographic changes, savings during 245–246 empirical evidence from Germany 253–264 lessons learned 264–265 literature review on pension reforms 246–249 retirement policies in Germany 249–253 demographic transitions 2, deregulation of banks 14 descriptions of sustainability 218 distribution of net worth 98 distribution of wealth 4, 108–112 overall wealth distributions 111–112 Pareto distribution 109–111 Divisia price indexes 220 Dynamic Integrated model of Climate and the Economy (DICE) 230 early eligibility age (EEA) 278, 279, 282, 283 earnings test in retirement 282–284 economic determinants of workers’ retirement decisions 271–272, 289–290 defining retirement 272 family context 286–287 health and health insurance 285–286 INDEX labor demand 287–289 public and private pensions 277–284 reduced form models 279–281 retirement trends and patterns 273–277 social security claims 282–284 structural models 281–282 wealth and savings 284–285 economics of higher education 36–37 education systems 34 education’s welfare function in America 35–36 Egypt 61 performance of Islamic banks versus conventional banks 65 employment rates for men (aged 60–64) 276 Endowment Model of investment 181 equalisand 97–98 equilibrium model of default 10, 12–13 equity 225–226 European debt crisis European Union (EU) debt and deficit 145 fiscal rules 152 gross debt and financial deficit 149–150 Eurosystem Household Finance and Consumption Survey (HFCS) 4, 94 ex ante information 17 ex ante tradeoff of default 11 ex post information 17 expense shocks 12, 14 family context and retirement 286–287 fiduciary states 163–166 financial accounting 4, 147 financial assets 95 financial distress 20 financial intermediation shock 22 financial stress from student debt 38 Finland Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 fiqh 72 Fiqh al-Muamalat 62 Fisherian wealth 215, 217 France Household Finance and Consumption Survey (HFCS) 96 299 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Fresh Start regime 18 full general equilibrium model of debt 12–13 full retirement age (FRA) 274, 282, 283, 291 full-accrual accounting 4, 147, 153 future consumption 97 general government 142 Generalized Entropy (GE) index 127 Generalized Entropy measures 118 generalized Lorentz curve 100, 102 Generalized Method of Moments (GMM) 73 Genuine Savings (GS) 5–6, 213–215, 236–237 empirical estimates 227 empirical evidence 227–232 empirical methods 226–232 equity concerns 225–226 population growth and technical change 221–223 strong sustainability 225–226 test summary 233 testing predictive power 232–236 trade openness 223–225 weak sustainability (WS) model 215–226 Germany current developments 264–265 empirical evidence on pension reforms 253–264 Household Finance and Consumption Survey (HFCS) 96 household net saving rates 258 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 households without supplementary pensions 259 occupational pension uptake rates 260 pensions planning and saving for retirement 262–264 retirement ages 255 retirement behavior changes 254–257 retirement policies 249 Riester pension savings 262 savings behavior changes 257–261 savings in times of demographic changes 245–265 supplementary pension uptake rates 259 www.ebook3000.com 300 Gharar 62, 86 Gini coefficient 104–105 government debt 1, 4–5, 139–142, 156–157 government deficit 4–5, 139–142, 156–157 Government Employees Pension Fund, Japan 5, 182 Government Finance Statistical Yearbooks 143, 148 government funds 142 Government Pension Fund Global (GPFG), Norway 5, 166, 173, 175, 182, 203–204 government, defining 142–146 Greece Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Green Net National Product (NNP) 221 Gross Domestic Product (GDP) 271 guarantee fees 154 Gulf Cooperation Council (GCC) 63, 66, 84 Haraam 62 Hartwick result 219 Hartwick rule 218–219 health and health insurance 285–286 high-dollar loans 45–46 homeownership 41–43 housing rates 42 Household Finance and Consumption Survey (HFCS) 94 household wealth 95 household wealth data 97 households expense shocks 12, 14 smoothing of variable income 11 human capital 44 Ijara 63 information technology (IT) and consumer debt 15–17 credit scoring 15 processing information 16–17 Income Based Repayment scheme 43 Income Contingent Repayment plan 43 income inequality 97, 121 absolute Lorentz curve 103 generalized Lorentz curve 102 quantile function 99 INDEX individual unsustainability criterion 222 Indonesia banking issues 76 empirical evidence from Islamic finance 80, 83 inequality measurement 97 decomposition by subgroups 108 distribution 98 equalisand 97–98 examples 106–108 measures 104–108 principles 97–98 ranking tools 98–104 scale-independent indices 104–105 transition-independent indices 105–106 units of analysis 98 inequality modelling 123 age-adjusted 115–118 general modelling strategy 121–123 long-run 114–115 influence function (IF) 121–122 informal bankruptcies 20 instantaneous well-being 216 instruments of wealth 213, 215, 217 insurance 11 intangible capital 231 interest rates borrowing constraint 11 schedule 10 to compensate for defaults 10, 15 intergenerational equity intergenerational well-being 216 International Budget Partnership (IBP) 141 International Islamic Liquidity Management Corporation 63 International Public Sector Accounting Standards (IPSAS) 140 investment rule 219 investors of last resort (ILRs) 177, 180, 184 Iran 59, 61 Islamic banking and finance 2, 3–4, 59–60 competition 73 future research 84–85 historical perspective 60–62 micro and social finance 84 mutual funds 78 other banking issues 74–77 performance versus conventional banks 63–68 principles 62–63 profit-sharing and loss-bearing (PSLB) versus non-PSLB types of finance 72–73 risks 68–72 INDEX small business lending 73 Sukuk 78 Islamic Development Bank (IDB) 61 Italy Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Janowitz, M 35 Japan Government Employees Pension Fund 5, 182 Johnson, Lyndon B 35–36 Jordan banking issues 76 performance of Islamic banks versus conventional banks 65 kakotopia 225 Keynes–Ramsey model 227 Korea investments 192 Kuwait 59, 61 banking issues 76 investments 191 labor demand and retirement 287–289 labor force participation by education 275 late adulthood economic practice Lerner indexes 73 liabilities 147 Libya investments 192 life cycle accumulation models 112 life cycle dynamics life cycle of borrowers 12–13 life cycle/permanent income (LC/PI) hypothesis 246 lifetime utility maximization Linaburg–Maduell Transparency Index 175, 176 loan renegotiation 19, 21 Lorentz curves 100–104 Lorentz ordinates 105 Luxembourg Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 301 household net worth and income inequality – translational invariant measures 107 Malaysia 59 banking issues 74, 76 empirical evidence from Islamic finance 79, 80, 81, 82, 83 investments 191 performance of Islamic banks versus conventional banks 64, 67 risks in Islamic banking 71 Malmquist productivity index 63 Malta Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Maximin-efficient paths 219, 226 maximizing lifetime utility measurement of debt and deficit 4–5 measurement of inequality 97 decomposition by subgroups 108 distribution 98 equalisand 97–98 examples 106–108 measures 104–108 principles 97–98 ranking tools 98–104 scale-independent indices 104–105 transition-independent indices 105–106 units of analysis 98 measurement of wealth 93, 94–95 Middle East North African (MENA) countries 73, 77 mortgage debt 20 Mudharabah partnership 60, 72, 85 multiple lender credit market 22 Musharakah partnership 60, 85 mutual funds 78 Nasser Social Bank 61 nationalization 165 negative residuals 150 Net National Product (NNP) 214, 219 Green NNP 221 net operating balance 147 net worth 4, 41, 94 absolute Lorentz curve 103 distribution 98 www.ebook3000.com 302 net worth (Continued) generalized Lorentz curve 102 government 147 quantile function 99 share of 101 Netherlands Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 No Fresh Start regime 18 nonfinancial public sector 143 non-parametric approaches 108 non-profit-sharing and loss-bearing (PSLB) contracts 62 compared with PSLB finance 72–73 normative perspective 225 Norway Government Pension Fund Global (GPFG) 5, 166, 173, 175, 182–183, 203–204 investments 192 model of asset allocation 182–183 notch generation 286 num´eraire 217 off-balance-sheet financing 153–155 oil revenues Oman investments 192 optimal B-robust estimator (OBRE) 120, 123 optimality 217 option value (OV) measure 290 Organization of the Islamic Conference (OIC) 61, 68 banking issues 75 performance of Islamic banks versus conventional banks 65, 66, 67 risks in Islamic banking 69, 70 outcome-based definition of sustainability 214 outcome-based sustainability 218–221, 226 outsourcing of debt collection 19 overall wealth distributions 111–112 Pakistan 61 banking issues 76 empirical evidence from Islamic finance 80, 82, 83 risks in Islamic banking 71 Panzar-Rousse H-statistic 73 INDEX parametric approaches 108 parametric modelling 120–121 Pareto diagrams 109, 110 Pareto tail model 123 Pareto Type I (power law) distribution 109–111 partial equilibrium model of debt 12–13 Pay-as-You Earn scheme 43 pay-day loans 22 peak value (PV) measure 280 Pen’s Parade 98–100 pension-fund assets 154 pension payments 154 pension reforms 246–249 pensions 2, 6–7 Personal Pension Plans (PPPs) 248 population growth 221–223 Portugal Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 positive residuals 150 power law distributions 109–111 precautionary savings 11, 14 prescriptions for sustainability 218 primary insurance amount (PIA) 290 private equity (PE) investment 185, 189–190 privatization 163 processing information 16–17 profit and loss (PLS) features 60 profit-sharing and loss-bearing (PSLB) contracts 62, 68 compared with non-PSLB types of finance 72–73 profit-sharing and loss-bearing (PSLB) features 60 propensity-score matched (PSM) subsamples 200 protection from bankruptcy 19 public expenditure public pension reserve funds (PPRFs) 206 public pensions 277 retirement 277–279 public sector 143 Qatar banking issues 76 empirical evidence from Islamic finance 80, 83 investments 191 INDEX Qard Al-Hasan 62, 84 Qatar Investment Authority (QIA) 176 qth wealth cumulation 100 qth wealth quantile 98 rabb-al-m¯al 72 racial issues homeownership 42 wealth gap 40 Rahn 86 Ramadan effect 78 ranking tools 98–104 real assets 95, 153 recognizing assets 146 reduced form models on pensions 279–281 relative Lorentz curve 100 relative mean deviation 104 renegotiation of loans 19, 21 Resource Allocation Mechanism (RAM) 214 optimality 217 time invariance 218, 219 retirement 271–272, 289–290 definition 272 family context 286–287 health and health insurance 285–286 labor demand 287–289 public and private pensions 277–284 reduced form models 279–281 social security claims 282–284 structural models 281–282 trends and patterns 273–277 wealth and savings 284–285 retirement behavior changes 254–257 retirement hazard by age 275 Retirement History Survey (RHS) 272 retirement policies in Germany Phase (1957–1972) – stability 249 Phase (1972–1984) – increasing generosity 249–250 Phase (1984–1992) – modest retirement 250 Phase (1994–2007) – sustainability reforms 250–253 retirement savings 2, 6–7, 43–44 Riba 59, 62, 84, 85 riba al-fadl 85 riba an-nasi’ah 85 ribawi loans 84 Riester pension reform 251–252, 257–261, 263 risk exposure 2, 13 risk-based pricing 16 303 sadaqah 84 Salam 63 Santiago Principles 176 Saudi Arabia 59 banking issues 76 performance of Islamic banks versus conventional banks 65 risks in Islamic banking 71 Saudi Arabian Monetary Agency (SAMA) 167 savings, genuine 5–6 savings, precautionary 11, 14 savings behavior changes 257–261 scale-independent indices 104–105 schedule of interest rates 10 schooling, inequalities in 34 screening borrowers 16 secured and unsecured debt quantitative model 23 securitization 13 self-cure delinquency 19 semi-parametric approaches 108 semi-parametric bootstrap 123 semi-parametric distribution 123 semi-parametric modelling 123 sense of shame 14 Shari´a law 59, 60 banking principles 62–63 risk-taking 72 Shari´a Supervisory Boards 84, 86 Singapore empirical evidence from Islamic finance 83 investments 191 Single-Parameter Gini (S-Gini) 105 Slovak Republic Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 Slovenia Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 small business lending 73 social choices 37–38 social security claims in retirement 282–284 Social Security wealth (SSW) 279–280 www.ebook3000.com 304 INDEX Sovereign Investment Laboratory (SIL) 167 investment statistics 191–192 Sovereign Wealth Fund Institute (SWFI) 172 sovereign wealth funds (SWFs) 2, 5, 163, 164, 165–166, 202–205 asset allocations and portfolio selections 184–190 countries and fund assets 168–169 definition 167–173 differences from other institutional investors 176–177 different types of state owners 195 empirical studies of investment patterns 185–187 empirical studies on target firm finances 197–199 evolving political response to cross-border investments 171–172 financial and macroeconomic influences 181 flow chart of operations 174 future research 204–205 geographical and industrial distribution of investments 190–194 historical evolution 170–171 investment impacts on target firm credit risk and stock volatility 201–202 investment impacts on target firm finances 196 investment impacts on target firm performance and governance 200–201 investment impacts on target firms 194–202 investment statistics 191–192 lessons drawn from research 203–204 long-term stock price effects 196–200 normative assessments of investment 177–184 Norway model of asset allocation 182–183 oil revenue-funding 181–182 organization and operation 173–177 other assessments of optimal investment policy 183–184 political and macroeconomic factors 189 private equity (PE) investment 189–190 recent proposals or launches 172–173 recent trends in investments 194 staffing 175 state ownership impacts on target firms 194–195 target selection and portfolio allocation 177–194 transparency measures 175–176 unresolved issue 204–205 value of investments 193 Spain Household Finance and Consumption Survey (HFCS) 96 household net worth and income inequality – scale invariant measures 106 household net worth and income inequality – translational invariant measures 107 state dependence of debt 10 state-owned enterprises (SOEs) 163–164, 195 stigma of bankruptcy 13, 14 stock and flow reconciliation 150–151 strong sustainability 225–226 structural models on pensions 281–282 student debt 3, 33–35, 46–47 asset accumulation 40–41 career and social choices 37–38 delinquency and default 38–39 economics of higher education 36–37 education’s welfare function in America 35–36 effects on asset accumulation 37 financial stress 38 homeownership 41–43 need for reducing absolute borrowing 45–46 net worth 41 overall debt 39–40 policy discussion 44–46 research on post-graduation financial outcomes 53–57 retirement savings 43–44 Sudan 59, 61 banking issues 76 performance of Islamic banks versus conventional banks 64 Sukuk 59, 60, 62, 78, 84, 86 Survey of Health, Ageing and Retirement in Europe (SHARE) 272 sustainability 213–215, 236–237 equity concerns 225–226 population growth and technical change 221–223 strong sustainability 225–226 trade openness 223–225 weak sustainability (WS) model 215–226 sustainability reforms in German retirement policy 250 towards actuarial adjustments 251 towards genuine multipillar system 251 towards later retirement ages 252–253 towards sustainability 251–252 sustainable development 5–6 INDEX Syria banking issues 76 System of National Accounts (SNA) 214 rate of return on bachelor’s degree 34–35 welfare system 35 utility maximization Takaful 59, 62 technical change 221–223 technical progress adjusted capital 226 time-augmented net investment 222 top-coding 124 total factor productivity (TFP) 228–229, 230 trade openness 223–225 transaction cost of loans 12 transition-independent indices 105–106 true deficit 139 Truman scores 175 Turkey banking issues 75 performance of Islamic banks versus conventional banks 64 virtual sustainability 224 UK banking issues 76 debt and deficit 146 risks in Islamic banking 71 undermatching 34 United Arab Emirates (UAE) 59, 61 banking issues 76 empirical evidence from Islamic finance 83 investments 191, 192 risks in Islamic banking 71 unmarried borrowers 14 USA American Dream 33–34 career and social choices of students 37–38 debt and deficit 144–145 economics of higher education 36–37 education system 34–35 education’s welfare function 35–36 effects of student debt on asset accumulation 37 federal student loan program 44–45 financial stress of student debt 38 higher education systems 44 homeownership 42 personal bankruptcy rise racial wealth gap 40 rate of default on student debt 39 305 Waad 86 wakalah 63 weak sustainability (WS) model 214, 215 consumption, prices and discounting 218–221 general model 215–218 wealth, World Bank definition 227 wealth inequality 4, 93–94, 124 age-adjusted wealth inequality measures 115–118 calculation of inequality measures 123 choice of 𝛽 123 data sources and methods 119–120 empirical implementation 93–94, 118–125 estimation of 𝛼 123 estimation problems 120 general modelling strategy 121–123 long-run inequality modelling 114–115 measurement of inequality 97–108 measurement of wealth 93, 94–95 model 123 nature of wealth 93 overall wealth distributions 111–112 parametric modelling 120–121 Pareto distribution 109–111 representing wealth distributions 108–112 semi-parametric bootstrap 123 semi-parametric modelling 123 statistical inference 120 structure of wealth distributions 112–118 top-coding 124 welfare implications of bankruptcies 17–19 window dressing 142 women pensioners 6–7 World Bank definition of wealth 227 Financial Structure Database 73 genuine savings (GS) estimates 229 GS test 234 intangible capital 231 measure of GS 231 Yellen, J L www.ebook3000.com WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA ... A Collection of Surveys on Savings and Wealth Accumulation www.ebook3000.com A Collection of Surveys on Savings and Wealth Accumulation Edited by Edda Claus and Iris Claus www.ebook3000.com... involving off balance sheet assets and liabilities Broad measures of debt and deficit on the SAVINGS AND WEALTH ACCUMULATION other hand are susceptible to the mismeasurement of on balance sheet assets... as an alternative model of financial intermediation and Islamic banking is practiced by conventional commercial banks (via Islamic windows), traditional Islamic banks as well as non-bank financial