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History and Logistics of LWS

Luxembourg Wealth Study: A Progress Report Eva Sierminska Conference on the “Construction and Usage of Comparable Microdata on Wealth: The Luxembourg Wealth Study” S.A.DI.BA., Banca d’Italia, Perugia, January 27-29, 2005 History and Logistics of LWS

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History and Logistics of LWS

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  1. Luxembourg Wealth Study:A Progress ReportEva Sierminska Conference on the “Construction and Usage of Comparable Microdata on Wealth: The Luxembourg Wealth Study”S.A.DI.BA., Banca d’Italia, Perugia, January 27-29, 2005

  2. History and Logistics of LWS • 27th IARIW General Conference in Stockholm in 2002 • Wealth inequality trends-wealth comparability lagging income comparability • July, 2003 in Luxembourg • Meeting of experts on wealth and data collection decided LWS worthwhile project • October, 2003 at Levy Economics Institute • Further meeting of experts, update of project funding, decision to hire coordinator • March 2004 – official launch of LWS at LIS headquarters in Luxembourg

  3. History and Logistics of LWS • Today: • January 2005 in Perugia, sponsored by Banca d’Italia • First draft of white papers • Report from the coordinator • Next meetings: • July 2005 biennial LIS asbl meeting • 2006 Final Conference venue TBA • Next stage of LWS begins in 2006

  4. Today’s Plan Part I • Goals of LWS • LWS and LIS • LWS ideal variable structure • Participants • LWS wealth variable list • 1st list • surveys and list • Issues • Aggregation possibilities

  5. Goals of the Luxembourg Wealth Study • Built within the Luxembourg Income Study (LIS) • 20 years experience in harmonizing household survey data • Establish a network of experts of micro-data on household net worth • Create comparable datasets containing wealth variables that enable cross-country comparisons of wealth measures • Produce comparative studies on household net worth, portfolio composition, and the wealth distribution of populations in different countries • Produce guidelines for data producers, similar to what has been done for income distribution statistics through LIS with the final Report of the Canberra Group

  6. LIS harmonization- basis for LWS harmonization? • Original data stored in 2 files: individual and household level • Individual level variables are constructed • Individual level variables are aggregated or reported in the household level file together with pure household level variables • Three files are created: household level and 2 individual level (adult and children) • Four groups of variables (hhld level): • Socio-demographic (education and labor market) • Expenditure • Detailed income variables • Income aggregates

  7. Issues with LIS structure for LWS • Unit of analysis: individual or household or family • Aggregate summary wealth variables (but how?) • Include income or expenditure aggregates • Periodicity: wealth vs. income and consumption • Ideal: wealth (12/31/XX and 12/31/XX+1) diff-unrealized capital gains income and consumption during XX+1 • Merge LIS and LWS if based on same data (?) • Many waves (which waves) • Many datasets (which datasets)

  8. Issues for LWS • Important to define basic wealth concept • Evaluating the quality of wealth components • Determine similarities and differences of the components of household portfolios

  9. Ideal LWS variable structure • Demographics • Income aggregates • Consumption aggregates • Wealth variables (household / individual / family level) • Behavioral variables • Bequest motivation • Inheritance expectations • Motives for savings • Intervivos transfers • Risk attitude • Income and health uncertainty/risk • Expectations (fertility; income support from the state)

  10. LWS Wealth Variables • Financial Assets • Non-Financial Assets • Liabilities

  11. LWS Wealth Variables • Financial Assets • Cash and Deposit Accounts: Transaction and Savings Accounts • Term Deposits, Certificates of Deposit • Bonds, Stocks, Mutual Funds • Life Insurance • Others • Pensions: DC, DB and Public

  12. Non-Financial Assets • Principal Residence • Investment Real Estate • Business Equity • Vehicles • Durables, Collectibles • Other

  13. Liabilities • Home Secured Debt: PR and Investment Real Estate • Non-housing Debt: • Installment Loans • Education Loans • Vehicle Loans • Credit Card Balances • Lines of Credit • Other loans from financial institutions • Informal Debt

  14. Canada Cyprus Finland Germany Italy Norway Sweden United Kingdom United States Others are expected to join in the future… Country participants

  15. Datasets in LWS • Canada-Survey of Financial Security (SFS)1999 • Cyprus-Survey of Consumer Finances (CySCF)1999/2002 • Finland- Household Wealth Survey 1994/1998 • Germany-Socio Economic Panel Study (GSOEP) 2002 • Italy-Survey of Household Income and Wealth (SHIW) 2002 • Norway-Income and Wealth Survey 2002 • Sweden- Wealth Survey (HINK) 2002 • United Kingdom-British Household Panel Study (BHPS)2000 • United States-Panel Study of Income Dynamics (PSID)1989/1994/1999 • United States-Survey of Consumer Finances (SCF)1992/1995/2001

  16. LWS Wealth Variables

  17. LWS Wealth Variables

  18. UK: ISA included in DA • GE: no checking accounts & balances over 2500 euros • US-PSID: DA+MMF and separate TM+ST and also LI+CL+TM • NO: K462 assets invested abroad (bank deposits, stocks and bonds)

  19. LWS Wealth Variables: (OFA) Other Financial Assets- Table 5

  20. LWS Wealth Variables: (PA) Pensions and Annuities- Table 5

  21. LWS Wealth Variables

  22. LWS Wealth Variables

  23. LWS Wealth Variables: (DR/CL and ONF) Durables/Collectibles and Other non-financial assets- Table 7

  24. LWS Wealth Variables

  25. LWS Wealth Variables

  26. GE: question G : does it include vehicle, educational loans and credit card debt? (also over 2500 euros) • IT: does the other debts question (TDEB02E) include educational loans? • UK: Where is other housing debt (i.e. not mortgages)? • FI: What goes into consumer loans? Where are vehicle loans? (MUULM or KULUTM)

  27. other issues …. • Canada: • little demographic information: family size, family composition, number of earners in the family, and for the major income recipient: age and highest education level …no gender!! • Cy-SCF: • No vehicles • Italy: • Advance payment on property not yet owned could include PR –what do we do with it? • Life Insurance can be recreated (?) • Not clear whether some assets are business assets or not. • Germany: • there is one joint category for financial assets (except pensions and LI). It does not include checking deposits. • there is one joint category for credit and debt (excluding mortgages) • for financial assets, tangible assets and debt only those 2500 euros or more are included

  28. other issues ….. • US-PSID: • broad and different grouping of financial asset category • Investment real estate and vehicles -net categories • Broad section on changes in wealth • US-SCF: • High non-response rates • Multiple imputations

  29. other issues…. • Finland: • Great income and expenditure data • What do we do with forestry? • Norway: • Real estate is tax value (on average: tax value=0.19*market value). • Tax credits render variables equal to zero. • Sweden: • Unit of analysis: household (18+ separate) • Cooperative housing is underestimated • Other real estate value = βr*tax value • Deposit accounts: If less than 100 SEK in interest than not reported. As a result 15-20 % of total sum deposited is excluded. • Life insurance policies are included to the extent they are declared for wealth taxation, but private individual pension rights and future public and collective pension rights are not.

  30. Today’s Plan Part II • Net worth concept • Chosen definitions and LWS • Proposal • LWS and the future

  31. What is wealth? …An abundance of material possessions and resources….

  32. What is net worth? • The value of non human assets, including cash, minus all liabilities Net worth in the literature: • Household disposable wealth (HDW) – market value of assets less liabilities Marketable wealth that are directly tradable • Augmented wealth - also includes all forms of future income (valuation of pension rights from public and private sources)

  33. Disposable wealth or Marketable wealth • Financial Assets: • Time and saving deposits, CDs and money market accounts • Government bonds, corporate bonds, foreign bonds and other financial securities • Corporate stock and mutual funds • Equity in trust funds • Cash value of life insurance plans • Cash value of pension plans (IRAs, 401(k)) and other defined contribution plans • Non-financial Assets • Gross value of owner occupied housing • Gross value of other real estate • Equity in unincorporated businesses • Consumer durables • Debts • Mortgage debt • Consumer debt including auto loans • Other debt

  34. Augmented Wealth = Marketable Wealth + Pension Wealth + Social Security Wealth = Marketable Wealth +PV of discounted future pension benefits + PV of discounted future social security benefits

  35. What is the ‘right’ definition of net worth? “Net worth consists of all assets less all debts covered by the survey.” Radner and Vaughan in 1987 • Institution proposed definitions: central banks, statistical offices • Researchers • Use their own • One for trends • One for cross-sections PROBLEM: -little comparability -countries use different definitions!

  36. Definition 1

  37. Definition 2

  38. Definition 3

  39. Definition 4

  40. Summary • ‘Net values’ disqualify countries with aggregate debt information • Similarly the ‘other debt’ category • ‘Other saving’ should be defined carefully • ‘Consumer durables,’ ‘life insurance’ and ‘pensions’ are not a common item • ‘Consumer debt’ is fairly comparable and adds detail to the net worth concept

  41. Summary • Still many questions remain • We know what is in the data • We know what is in the documentation • One LWS net worth definition proposed • What is next??? • We get to hear your answers, questions, comments, reactions..….

  42. Next Steps after your answers, questions, comments, reactions..…. • consumption or income data in the LWS • Income available in all surveys • Consumption: Canada, Finland, Italy, UK?, US…others? • demographic variables

  43. Next Steps after your answers, questions, comments, reactions..…. • consumption or income data in the LWS • Income available in all surveys • Consumption: Canada, Finland, Italy, UK?, US…others? • demographic variables • LWS and LIS

  44. Canada-Survey of Financial Security (SFS)1999 Cyprus-Survey of Consumer Finances (CySCF)1999/2002 Finland- Household Wealth Survey 1994/1998 Germany-Socio Economic Panel Study (GSOEP) 2002 Italy-Survey of Household Income and Wealth (SHIW) 2002 Norway-Income and Wealth Survey 2002 Sweden- Wealth Survey (HINK) 2002 United Kingdom-British Household Panel Study (BHPS)2000 United States-Panel Study of Income Dynamics (PSID)1989/1994/1999 United States-Survey of Consumer Finances (SCF)1992/1995/2001 Datasets in LIS and LWS

  45. Next Steps after your answers, questions, comments, reactions..…. • consumption or income data in the LWS • income available in all surveys • consumption: Canada, Finland, Italy, UK?, US…others? • LWS and LIS • demographic variables • begin harmonization process

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