Centre for Household Finance and Macroeconomic Research (HOFIMAR)

Working papers

2025

• Andreas Fagereng, Luigi Guiso and Luigi Pistaferri

  Marriage, Assortative Mating and Wealth Inequality

  Working Paper Series No 5/2025

  Abstract: We use population data on capital income and wealth holdings for Norway to measure asset positions and wealth returns before individuals marry and after the household is formed. These data allow us to establish a number of novel facts. First, individuals sort on personal wealth rather than parental wealth. Second, people match also on their personal returns to wealth and assortative mating on returns is as strong as that on wealth. Third, post-marriage returns on family wealth reflect in equal part the pre-marriage returns of the two spouses. However, for households at the top of the wealth distribution at marriage, family wealth is largely managed by the spouse with the highest potential to grow it, providing a microfoundation for the scale dependence in wealth returns documented in several empirical papers. Fourth, marriage lowers the degree of wealth inequality as well as the heterogeneity in returns relative to the counterfactual case of no marriages. We use a simple framework to illustrate how the inequality-attenuating role of marriage is affected by assortative mating on wealth and returns and by wealth management task allocation between spouses.

• Lovisa Reiche

  Beyond Groceries: Forecast Confidence and the Gender Gap in Inflation Expectations

  Working Paper Series No 4/2025

  Abstract: This paper develops a theoretical framework to understand heterogeneity in inflation expectations. I integrate two mechanisms previously studied in isolation, exposure to salient prices and forecast confidence, within a Bayesian learning model. Empirically, I examine these mechanisms through the well-documented gender gap in inflation expectations. German and US household data confirm that forecast confidence is the dominant driver, while exposure to grocery prices matters only for low-confidence respondents. Forecast confidence is improved by financial literacy. Beyond gender, I provide a lens to study demographic heterogeneity, and show that salient prices exert greater influence during periods of elevated macroeconomic uncertainty

• Helene Onshuus

  Pre-committed Consumption and Family Insurance after Job Loss

  Working Paper Series No 3/2025

  Abstract: How does family composition affect consumption insurance? I study the consumption expenditure response to job loss in Norway from 1997 to 2011, and present two empirical facts: Among job losers without children, the consumption expenditure response does not differ between couples and singles. Second, single parent job losers reduce consumption expenditure much less than married or cohabiting job losers with children. Both findings run contrary to workhorse models of family insurance. I resolve the puzzle in a model of household consumption with pre-committed consumption and show that constrained households have higher marginal propensities to consume than unconstrained households.

• Andreas Fagereng, Luigi Guiso, Luigi Pistaferri, and Marius A. K. Ring

  Insuring Labor Income Shocks: The Role of the Dynasty

  Working Paper Series No 2/2025

  Abstract: We provide empirical evidence on the importance of a relatively understudied channel of insurance against labor income shocks: transfers from (cash-rich) parents to (cash-short) children when the latter experience negative wage shocks. Matching population data for Norway across two generations, we establish several results. First, parents make a transfer—i.e., run down liquid assets—when adult children experience negative labor income shocks. Consistent with dynastic insurance, we observe no transfers when income shocks are positive. Second, parents’ responses depend on the natureof the shock. If losses are temporary, parents dissave; if they are persistent, parents save in order to make future transfers. Parental transfers offset 43% of temporary and 27% of persistent losses. Third, insurance is lower when children have other smoothing options, like spousal labor supply, and is greater for shocks to their own child versus a child’s spouse. Support also increases if the spouse’s parents can contribute, suggesting “competition for attention.” Lastly, insurance flows are one-way: children do not insure their parents against income losses.

• Karl Harmenberg and Raysa Lizarraga

  Earnings dynamics and top-earnings inequality

  Working Paper Series No 1/2025

  Abstract: We introduce a simple generalization of the canonical permanent-transitory earnings process, a square-root process. The square-root process generates a Pareto tail in earnings and is able to match the dynamics of top-earnings inequality over the life cycle while retaining a good match to the covariance structure of earnings. By contrast, the canonical model fails to match the dynamics of top-earnings inequality over the life cycle. Since our square-root process is simple, with only one state variable, it can easily be used in structural macroeconomic models.

2024

• Ella Getz Wold, Knut Are Aastveit, Eirik Eylands Brandsaas, Ragnar Enger Juelsrud and Gisle James Natvik

  The housing channel of intergenerational wealth persistence

  Working Paper Series No 6/2024

  Abstract: We use Norwegian micro data and a life-cycle model with housing to study how wealth transmits across generations through the housing market. A mediation analysis reveals large housing gaps based on parental wealth. A shift-share IV-analysis using stock market returns supports a causal interpretation. Using the timing of intra-family deaths, we further show that housing outcomes when young are important determinants of later-in-life wealth. Nearly 15% of intergenerational wealth persistence occurs through the housing market, making housing equally important as the combined impact of parental wealth via a broad range of offspring characteristics, including income and education.

• Annika Bacher, Philipp Grübener and Lukas Nord

  Joint Search over the Life Cycle

  Working Paper Series No 5/2024

  Abstract: This paper provides novel evidence that the added worker effect – labor force entry upon spousal job loss – is substantially stronger for young than old households. Using a life cycle model of two-member households in a frictional labor market, we study  whether this age-dependency is driven by heterogeneous needs for or availability of spousal insurance. Our framework endogenizes asset and human capital accumulation, as well as arrival rates of job offers, and is diciplined against U.S. micro data. By means of counterfactuals, we find a strong complementarity across both margins: A large added worker effect requires both high spousal earnings potential (human capital) relative to the primary earner and limited access to other means of self insurance (assets). Together, both margins can account for the observed age differential in the added worker effect. The model predicts substantial crowding out of spousal labor supply by unemployment benefit extensions among young households, in line with their stronger need for spousal insurance.

• Kasper Kragh Balke, Markus Karlman and Karin Kinnerud

  Down-payment requirements: Implications for portfolio choice and consumption

  Working Paper Series No 4/2024

  Abstract: This paper studies how down-payment requirements for house purchases affect households’ saving and housing decisions, and the implications for macroeconomic policy. Using a quantitative model, we find that households not only postpone homeownership when the down-payment constraint is higher, but they also delay when they start saving for the house. We show analytically that this result holds under standard assumptions for households’ earnings and preferences. The changes to saving and portfolio choices affect the distribution of liquidity-constrained households, which in turn impacts aggregate responses to policy. Specifically, the cash-flow channel of monetary policy is reduced, and it becomes increasingly important to direct fiscal transfers at low income households to achieve the largest consumption response. We also find that a stricter down-payment requirement is associated with substantial welfare costs, especially for high-income households.

• Working paper Kasper Kragh Balke, Markus Karlman and Karin Kinnerud

  Winners and Losers from Property Taxation

  Working Paper Series No 3/2024

  Abstract: This paper considers optimal taxation of housing capital. To this end, we employ a life-cycle model calibrated to the U.S. economy, where asset holdings and labor productivity vary across households, and tax reforms lead to changes in house and rental prices, wages, and interest rates. We find that the optimal property tax in the long run is considerably higher than today. A higher property tax leads to a reallocation from housing to business capital, which in turn increases wages and reduces interest rates. These equilibrium effects allow for an improved consumption smoothing over the life cycle, due to progressive earnings taxes and lower borrowing costs. However, most current households would incur substantial welfare losses from an implementation of a higher property tax, since house prices fall, and a majority own their home. Hence, when accounting for transitional dynamics, it is not clear that a higher property tax is feasible or preferred.

• Working paper Martin B. Holm, Rustam Jamilov, Marek Jasinski and Plamen Nenov

  Estimating the Elasticity of Intertemporal Substitution using Dividend Tax News Shocks

  Working Paper Series No 2/2024

  Abstract: This paper studies the spending response to news about a dividend tax reform to estimate the elasticity of intertemporal substitution (EIS). The Norwegian dividend tax reform was proposed in 2003, announced in 2004, and implemented in 2006, raising the dividend tax rate by 28 percentage points. We compare the spending responses of exposed households to a control group with no dividend income. Exposed households increased spending after the news and reduced spending after implementation. We show that this behavior is only consistent with an EIS above one. Using a capitalist worker framework, we estimate the EIS to be around 1.6.

• Working paper Giulio Fella, Martin B. Holm, and Thomas M. Pugh

  Saving after Retirement and Preferences for Residual Wealth

  Working Paper Series No 1/2024

  Abstract: We use administrative data for Norway to estimate an incomplete-market life-cycle model of retired singles and couples with a bequest motive, health-dependent utility,
  and uncertain longevity and health. We allow the parameters of the bequest utility to differ between households with and without offspring. Our estimates imply a very strong utility of residual wealth (bequest motive), in line with the estimates by Lockwood (2018). The bequest motive accounts for approximately three-quarters of aggregate wealth at age 85. More surprisingly, we estimate similar utility of residual wealth for households with and without offspring. We interpret this as, prima facie, evidence that the utility of residual wealth represents forces beyond an altruistic bequest motive.

2023

• Working paper Serdar Ozkan, Joachim Hubmer, Sergio Salgado, Elin Halvorsen

  Why Are the Wealthiest So Wealthy? A Longitudinal Empirical Investigation

  Working Paper Series No 7/2023

  Abstract: We use Norwegian administrative panel data on wealth and income between 1993 and 2015 to study lifecycle wealth dynamics, focusing on the wealthiest households. On average, the wealthiest start their lives substantially richer than other households in the same cohort, own mostly private equity, earn higher returns, derive most of their income from dividends and capital gains, and save at higher rates. At age 50, the excess wealth of the top 0.1% group relative to mid-wealth households is accounted for in about equal terms by higher saving rates (34%), higher initial wealth (32%), and higher returns (27%), while higher labor income (5%) and inheritances (1%) account for the small residual. There is significant heterogeneity among the wealthiest: one-fourth of them—which we dub the “New Money”—start with negative wealth but experience rapid wealth growth early in life. Relative to the quartile of top owners that already started their life rich—the “Old Money”—the New Money are characterized by even higher saving rates and returns and also by higher labor income. Their excess wealth is mainly explained by higher saving rates (46%), higher returns (34%), and higher labor income (16%).

• Working paper Ragnar E. Juelsrud and Ella Getz Wold

  The importance of unemployment risk for individual savings

  HOFIMAR Working Paper Series No 6/2023

  Abstract: In this paper we use a novel natural experiment and Norwegian tax data to quantify the causal impact of unemployment risk on individual savings. We show theoretically that higher unemployment risk increases liquid savings and has an ambiguous impact on illiquid savings in partial equilibrium. In line with the model predictions, our empirical results confirm that a one percentage point increase in unemployment rates increases liquid savings by 1.3 percent in the cross-section. Reassuringly, this effect is driven by low-tenured workers, who face the highest increase in risk. Illiquid savings remain unaffected, implying an increase in the overall liquidity of individual saving portfolios. Using two independent approaches to quantify the overall importance of the unemployment risk channel in explaining saving dynamics during recessions, we find that at least 80% of the recession-induced increase in liquid savings can be explained by higher unemployment risk.

• Working paper Andreas Fagereng, Magnus A. H. Gulbrandsen, Martin B. Holm and Gisle J. Natvik

  Fisher Dynamics, Monetary Policy, and Household Indebtedness*

  HOFIMAR Working Paper Series No 5/2023

  Abstract: Growth in household debt-to-income ratios can be attributed to nominal debt changes or “Fisher dynamics” due to interest income and expenses, real income growth, and inflation. With microdata covering the universe of Norwegian households for more than 20 years, we decompose the importance of these channels for how debt-toincome ratios evolve over time and respond to monetary policy shocks. On average, debt changes outsize Fisher dynamics, but among highly leveraged households Fisher dynamics dominate. After interest rate hikes, debt changes and Fisher dynamics pull in opposite directions, with the former dominating, leading to a decline in debt-toincome ratios. This pattern is consistent across sub-groups, including highly indebted households, recent movers, households facing liquidity constraints, and households facing high unemployment risk.

• Working paper Knut Are Aastveit, Ragnar Enger Juelsrud and Ella Getz Wold

  The leverage-liquidity trade-of mortgage regulation

  HOFIMAR Working Paper Series No 4/2023

  Abstract: We evaluate the impact of loan-to-value restrictions on household financial vulnerability. Using Norwegian tax data, we first document a beneficial leverage effect, in which households respond to the regulation by reducing house purchase probabilities, debt and interest expenses. Second, we document a detrimental and persistent liquidity effect working through higher down payment requirements. We further show that households which, due to the regulation, hold less liquid assets also have larger consumption falls upon unemployment. Finally, we provide back of the envelope calculations on the net impact of lower leverage and lower liquidity on household consumption volatility. We find that the beneficial impact of lower leverage is outweighed by the detrimental impact of lower liquidity, suggesting that LTV restrictions are not successful in reducing consumption volatility at the household level.

• Working paper Annika Bacher

  The Gender Investment Gap over the Life-Cycle

  HOFIMAR Working Paper Series No 3/2023

  Abstract: Single women hold less risky financial portfolios than single men. This paper analyzes the determinants of the “gender investment gap” based on a structural life-cycle framework. The model is able to rationalize the investment gap without introducing gender heterogeneity in preferences (e.g. in risk aversion). Rather, lower income levels and larger household sizes of single women are the main determinants for explaining the gap. Importantly, expectations about future realizations of both variables (that cannot easily be controlled for in regressions) drive most of the investment differences for young households whereas heterogeneity in observable characteristics explains the gap later in life.

• Working paper Andreas Fagereng, Matthieu Gomez, Emilien GouinBonenfant, Martin Holm, Benjamin Moll and Gisle Natvik

  Asset-Price Redistribution

  HOFIMAR Working Paper Series No 2/2023

  Abstract: Over the last several decades, there has been a large increase in asset valuations across many asset classes. These rising valuations had important effects on the distribution of wealth. However, little is known regarding their effect on the distribution of welfare. To make progress on this question, we derive a sufficient statistic for the (money metric) welfare effect of a change in asset valuations, which depends on the present value of an individual’s net asset sales: rising asset prices benefit prospective sellers and harm prospective buyers. We estimate this quantity using panel microdata covering the universe of financial transactions in Norway from 1994 to 2019. We find that rising asset valuations had large redistributive effects: they redistributed from the young towards the old and from the poor towards the wealthy.

• Working paper Iván Alfaro, Nicholas Bloom and Xiaoji Lin

  The Finance Uncertainty Multiplier

  HOFIMAR Working Paper Series No 1/2023

  Abstract: We show how real and financial frictions amplify, prolong and propagate the negative impact of uncertainty shocks. We first use a novel instrumentation strategy to address endogeneity in estimating the impact of uncertainty by exploiting differential firm exposure to exchange rate, policy, and energy price volatility in a panel of US firms. Using common proxies for financial constraints we show that ex-ante financially constrained firms cut their investment even more than unconstrained firms following an uncertainty shock. We then build a general equilibrium heterogeneous firms model with real and financial frictions, finding financial frictions: i) amplify uncertainty shocks by doubling their impact on output; ii) increase persistence by extending the duration of the drop by 50%; and iii) propagate uncertainty shocks by spreading their impact onto financial variables. These results highlight why in periods of greater financial frictions uncertainty can be particularly damaging.