Cyclical Transactions and Wealth Inequality

SSRN, Paper 

Wealth is distributed more unevenly than income, and one contributing factor might be that richer households earn higher portfolio returns. I uncover one channel that causes portfolio returns to be increasing in wealth: Poorer households consistently buy risky assets in booms—when expected returns are low—and sell after a bust—when expected returns are high. Although time-varying expected returns are a robust empirical fact, theories are ambiguous on whether poorer or richer households  engage in such cyclical trading patterns. I estimate the trading patterns for households across wealth levels, in the US housing market for 1988-2013. I interact housing ownership patterns from deeds records with household-level wealth, which I infer from merging owners' surnames with their name-based income in the 1940 full Census. The estimated dispersion in expected returns from this “buy-high-sell-low” channel is large: The interquartile-range difference is 60 basis points per year. The channel predicts that geographies with historically higher volatility will feature more wealth inequality than income inequality: I verify this implication in the data. These results suggest that a government policy intended to boost poorer households' wealth via homeownership can backfire if it ignores the status of house prices.   

Media: Business Insider, Bloomberg, Hutchins

Bank Branch Access: Evidence from Geolocation Data (with Alexander K. Zentefis)

SSRN, Paper, Online Appendix, Supplementary Material

We use location data from millions of mobile devices to construct a granular measure of bank access throughout the United States. The measure originates from a spatial gravity model and is a function of a local area’s distance from available bank branches and branch characteristics. To overcome methods that protect user privacy in the mobile device data, we estimate the access measure using the Method of Simulated Moments. The estimated gravity coefficient used in the access measure is -0.8, which implies that the number of residents visiting a bank branch drops by 80% for every doubling in the branch’s distance away from home. We document substantial variation in bank access nationwide. Rural areas experience considerably weaker access than big cities. We use the access measure to evaluate a policy of postal banking. We estimate that the policy would improve bank access the most in low income areas and areas with higher Black and Hispanic population shares.

Media: Yale Insights

Effect of Ownership Composition on Property Prices and Rents: Evidence from Chinese Investment Boom in US Housing Markets

SSRN, Paper, Online Appendix

A capital influx into local housing markets would be expected to increase house prices, but the spillover effect onto rental prices is theoretically ambiguous. I estimate both price impacts in U.S. residential housing markets using data from a boom in real estate purchases by buyers from China, which amounted to $200 billion of purchases made between 2010 and 2019. Using a novel method to measure these purchases and an instrumental variable for where purchases are made, I find a large positive house price impact. Consistent with investment q-theory, rents fall as constructions rise, especially in areas with elastic housing supply.

Identifying Taste-based Discrimination: Impact of Black Electoral Victories on Racial Prejudice and Economic Gaps

SSRN, Paper, Online Appendix

The election and presidency of Barack Obama intensified discussions of how electing a Black leader affects White Americans' attitude toward Black Americans. I test for the causal impact of Black electoral victories on racial prejudice in local elections. Using Race Implicit Attitude Test scores as a measure of racial prejudice and close-election regression-discontinuity design for causal inference, I find Black electoral victories cause measures of racial bias to rise, by 4% of the average Black-White difference in IAT scores. Simultaneously, they cause larger racial gaps in unemployment and mortgage denials. Interpreting these close electoral victories as instrumental variables, I find a large causal effect of prejudice-based racial discrimination on Black-White economic gaps. 

The Effect of Minority Bank Ownership on Minority Credit (with Agustin Hurtado)


We study the effect of racial minority bank ownership on minority credit access. Using new data for 87 million minority borrowers, we present four main findings. First, minority-owned banks specialize in same-race mortgage lending. Over 70 percent of their mortgages go to borrowers of bank owners' same race. Second, the effect of minority bank ownership on minority credit is large and exceeds that of minority loan officers. We find that minority borrowers applying for mortgages in banks whose owners are of the same minority group are nine percentage points more likely to be approved than minority borrowers in non-minority banks. This effect is over six times that of a minority loan officer. Third, the default rate of minority banks' same-race borrowers is much lower than that of otherwise-identical borrowers of other races, and Asian banks drive this difference. Fourth, evidence from plausibly exogenous bank collapses suggests that the effect of Asian bank ownership might reflect an expansion rather than a reallocation of credit to Asian borrowers. Our findings are consistent with minority bank ownership reducing information frictions and improving credit allocations.

Intergenerational Elasticity of Consumption and Income (with Lancelot Henry de Frahan)


We estimate the intergenerational elasticity (IGE) of consumption and income. As a complementary analysis to income IGE, consumption mobility is a closer measure of welfare mobility, and comparisons with income IGE are informative about intergenerational consumption insurance (in a frictionless, dynastic benchmark, the consumption IGE is one). Using surnames as links, we merge income and home values from the 1940 full-count Census to today’s home value as a proxy for consumption along with income. From surname-level correlations, we infer a family-level consumption IGE of 0.74 per generation, higher than that of income. To arrive at these results, we formalize the inference of family-level IGE from surname-level data and adjust for two key sources of bias: ecological inference and immigration. We interpret the estimated consumption IGE through intergenerational Euler equations.

Human Capital in a Time of Low Interest Rates (with Paymon Khorrami)


We argue that a long-term low interest rate environment can cause labor income inequality, the emergence of the working rich, and reduced intergenerational mobility. We provide a simple model with endogenous human capital accumulation and credit constraints to demonstrate this causal link. The mechanism operates through a tilting of the human capital gradient: wealthy households, more so than poor households, will increase human capital investment in response to low rates. Normatively, these tilting responses to low rates are inefficient, but higher capital taxes is not an ideal response. We find empirical support for our tilting mechanism over the last 60 years in the US. Quantitatively, we show that the endogenous human capital investment response to low interest rates can account for a 17% rise in cross-sectional labor income variance (higher inequality) and a 7% higher parent-child labor income inter-generational elasticity (lower mobility).


Market Power as Skin-in-the-Game (with Paymon Khorrami)

We show that, when households have mistaken beliefs or less information, intermediary market power can limit over-investment, improve resource allocation, and reduce asset price volatility. If intermediaries are compensated based on their returns, market power increases their compensation, leading to better incentives to invest according to the social good. The results are analogous if intermediaries are compensated based on assets under management in a dynamic world: market power creates skin-in-the-game incentives, even if they are absent in the contract. We devise a series of empirical tests, in both finance and non-finance arenas, as to the interacting effects of household irrationality and intermediary competition.

Impact of Economic Condition on Racial Prejudice

Does deteriorating economic condition cause racial prejudice to rise? Despite psychological/sociological microfoundations and multiple economic implications of the inferiority of racial prejudice, empirical evidence has been inconclusive. This paper constructs better-powered measures of local areas' racial prejudice using Google searches for racial slur and "KKK," white-on-black non-pecuniary crime, survey responses and corporal punishment at school. Across these measures, racial prejudice correlates negatively with the local economic condition. Using predictors of local economic condition in the 2000s, I show that the relationship is causal: lower income causes higher racial prejudice in the area. 


Closing Racial Economic Gaps during and after COVID-19 (with Jane Dokko) In The Pandemic Divide: How COVID Increased Inequality in America, edited by Gwendolyn L. Wright, Lucas Hubbard and William A. Darity, 2022, pp. 210-230

Which Early Withdrawal Penalty Attracts the Most Deposits to a Commitment Savings Account? (with John Beshears, James Choi, Christopher Harris, David Laibson and Brigitte Madrian) Journal of Public Economics, 2020, 183 

Paper, Online Appendix, Link to published version 

Media: The Atlantic, WSJ