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Media type:
E-Book
Title:
The Effect of Income Inequality on Stock Market Participation
:
Evidence from US Households and the Adoption of the Medicaid Expansion Under the Affordable Care Act
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments June 15, 2022 erstellt
Description:
The purpose of this study is to investigate whether the social outcomes of economic inequality extend to the financial decisions of individual investors, particularly the decision to invest in stocks. Using tax and census data during the 2010-2018 period we find robust evidence that households living in more unequal U.S. counties received more ordinary dividends from equity investments. This effect cannot be explained by factors such as unequal counties having higher average incomes, or the reverse effect of unequal stock market access on wealth concentration over the long run. We propose that this positive association results from the documented effects of income inequality on psychosocial stress and of psychosocial stress on financial risk-taking. Consistently, we find a significant reduction in the number of households receiving ordinary dividends in counties from the 38 states and Washington DC that adopted the Medicaid expansion under the Affordable Care Act (ACA) in 2014. This constitutes an exogenous shock to income inequality and psychosocial stress and a quasi-natural experiment to test our hypothesis