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Liquidity issues: solutions for the asset rich, cash poor
Author(s) -
Loutzenhiser Glen,
Mann Elizabeth
Publication year - 2021
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/1475-5890.12281
Subject(s) - market liquidity , economics , cash , pension , accounting liquidity , payment , liquidity crisis , asset (computer security) , scale (ratio) , liquidity risk , finance , business , monetary economics , physics , computer security , quantum mechanics , computer science
Liquidity concerns are oft raised when considering wealth taxes, yet the issue has received scant attention in the extant literature. In this paper we provide the first comprehensive review of the liquidity problem. Our aims are to estimate the scale of the problem, to explore the extent to which archetypal examples are at risk of experiencing low liquidity, and to review the policy options to reduce the scale and impact of liquidity challenges. Using data from Round 6 of the Wealth and Assets Survey, we demonstrate that the scale of the problem depends largely on conceptual and design issues. We find that farmers and business owners are commonly over‐represented in the low‐liquidity group, but there is little evidence to support the typical narrative surrounding single pensioners. Finally, we conclude our review with a number of preferred solutions to address liquidity issues, including recognising that a net wealth tax can be paid out of income or by sale of assets, by withholding tax (e.g. by pension providers), by borrowing/financing, deferred payment arrangements and, possibly in limited circumstances, payment in specie.