Universal Baby Bonds Reduce Black-White Wealth Inequality, Progressively Raise Net Worth of All Young Adults.

The distribution of wealth has grown increasingly unequal, especially along racial lines. Lawmakers and researchers propose to address the issue with universal "baby bonds," paid to every newborn and preserved until young adulthood. Bond values are tied inversely to wealth up to a $50,000 maximum investment. This study uses longitudinal data from the Panel Study of Income Dynamics on the assets of young adults to simulate contemporary racial inequalities under a counterfactual policy environment in which the United States had administered baby bonds when the current cohort of young adults were newborns. Initial bond values are defined categorically by quintiles of household wealth observed in 1989 and 1994, smoothed across the inverse hyperbolic sine of household wealth, and then assumed to grow at 2% per year through 2015. Without baby bonds, young White Americans hold approximately 16 times the wealth of young Black Americans at the median ($46,000 vs. $2,900). Baby bonds reduce the disparity to a factor of 1.4 ($79,143 vs. $57,845), in the absence of intervening behavioral responses to the policy. The share held by the top decile decreases from 72% to 65%, marginally approaching the more egalitarian societies. Baby bonds considerably narrow wealth inequalities while simultaneously improving the net asset position of young adults and alleviating asset concentration. [ABSTRACT FROM AUTHOR]