Birds of a feather flock together : the impact of choice of spouse on family labor income inequality

(1)

'LVFXVVLRQ3DSHUV1R-XQH 6WDWLVWLFV1RUZD\5HVHDUFK'HSDUWPHQW

,XOLH$VODNVHQ7RP:HQQHPRDQG5ROI

$DEHUJH

%LUGVRID)HDWKHU)ORFN 7RJHWKHU

7KH,PSDFWRI&KRLFHRI6SRXVHRQ )DPLO\/DERU,QFRPH,QHTXDOLW\

$EVWUDFW

7KLVSDSHUGLVFXVVHVWKHHIIHFWVRIWKHVXEVWDQWLDOULVHLQODERUIRUFHSDUWLFLSDWLRQRIPDUULHGZRPHQ RQWKHOHYHOVWUXFWXUHDQGWUHQGLQIDPLO\ODERULQFRPHLQHTXDOLW\$QLQWHUHVWLQJTXHVWLRQLVWRZKDW H[WHQWWKHULVHLQZRPHQVODERUIRUFHSDUWLFLSDWLRQKDVOHGWRDWHQGHQF\RIIORFNLQJWRJHWKHULH ZKHWKHUZRPHQZLWKKLJKODERULQFRPHDUHPDUULHGWRPHQZLWKKLJKODERULQFRPHRUYLFHYHUVD

%DVHGRQWKHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWDQGDUHODWHGLQGH[IRUWKHH[WHQWRIIORFNLQJ WRJHWKHUDSSOLHGWRLQFRPHGDWDIRU1RUZD\IRUWKHSHULRGZHILQGDWHQGHQF\RIIORFNLQJ WRJHWKHUIRUFRXSOHVZLWKDWOHDVWRQHODERULQFRPHDQGFRXSOHVZLWKWZRODERULQFRPHV)RUFRXSOHV ZLWKRQO\RQHODERULQFRPHLHFRXSOHVZKHUHRQO\RQHODERULQFRPHLVDERYHWKHWKUHVKROGJLYHQE\

WKHVWDWLVWLFDOGHILQLWLRQRIODERULQFRPHWKHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWLQGLFDWHVWKDWWKHUH LVQRWHQGHQF\RIIORFNLQJWRJHWKHU)RUWKLVJURXSZRPHQVODERULQFRPHJLYHVDQHTXDOL]LQJ FRQWULEXWLRQWRIDPLO\ODERULQFRPHLQHTXDOLW\7KLVLOOXVWUDWHVWKHLPSRUWDQFHRIGLVWLQJXLVKLQJ EHWZHHQRQHDQGWZRLQFRPHIDPLOLHVLQDQDO\VLVRIIDPLO\ODERULQFRPHLQHTXDOLW\

.H\ZRUGV)DPLO\LQFRPHGLVWULEXWLRQGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWVXPPDU\PHDVXUHIRU WKHH[WHQWRIIORFNLQJWRJHWKHU

-(/FODVVLILFDWLRQ'

$FNQRZOHGJHPHQW&RPPHQWVIURPSDUWLFLSDQWVDWWKH(XURSHDQ6RFLHW\IRU3RSXODWLRQ(FRQRPFLV FRQIHUHQFHLQ%RQQDUHPXFKDSSUHFLDWHG7KHDXWKRUVZRXOGOLNHWRWKDQN$QQH6NRJOXQGIRU H[FHOOHQWZRUGSURFHVVLQJDQGHGLWLQJ

$GGUHVV,XOLH$VODNVHQ6WDWLVWLFV1RUZD\5HVHDUFK'HSDUWPHQW32%R['HS2VOR 1RUZD\(PDLOLXOLHDVODNVHQ#VVEQR

(2)

'LVFXVVLRQ3DSHUV FRPSULVHUHVHDUFKSDSHUVLQWHQGHGIRULQWHUQDWLRQDOMRXUQDOVRUERRNV$VDSUHSULQWD 'LVFXVVLRQ3DSHUFDQEHORQJHUDQGPRUHHODERUDWHWKDQDVWDQGDUGMRXUQDODUWLFOHE\LQ FOXGLQJLQWHUPHGLDWHFDOFXODWLRQDQGEDFNJURXQGPDWHULDOHWF

$EVWUDFWVZLWKGRZQORDGDEOH3')ILOHVRI

'LVFXVVLRQ3DSHUVDUHDYDLODEOHRQWKH,QWHUQHWKWWSZZZVVEQR

)RUSULQWHG'LVFXVVLRQ3DSHUVFRQWDFW 6WDWLVWLFV1RUZD\

6DOHVDQGVXEVFULSWLRQVHUYLFH 1.RQJVYLQJHU

7HOHSKRQH 7HOHID[

(PDLO 6DOJDERQQHPHQW#VVEQR

(3)

,QWURGXFWLRQ

$VLVZHOONQRZQIURPWKHHFRQRPLFOLWHUDWXUHWKHPDMRULW\RIWKHIDFWRUVWKDWDOWRJHWKHUGHWHUPLQHWKH GLVWULEXWLRQRILQFRPHLQDVRFLHW\LVKHDYLO\DIIHFWHGE\WKHOHYHODQGVWUXFWXUHRIYDULRXVSROLF\

HIIRUWV+RZHYHUWKHPDWFKLQJSURFHVVLQWKHPDUULDJHPDUNHWDSSHDUVWREHDQLPSRUWDQWH[FHSWLRQ VLQFHSHRSOHVFKRLFHRIPDWHLVOLNHO\WREHLQGHSHQGHQWRISROLF\LQVWUXPHQWVWKDWFRQFHUQWD[HVDQG FRQYHQWLRQDOVRFLDOVHFXULW\SD\PHQWV7KXVDQLQWHUHVWLQJTXHVWLRQLVZKHWKHUDQGWRZKDWH[WHQW FKRLFHRISDUWQHUVLQWKHPDUULDJHPDUNHWDIIHFWVWKHLQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\ODERU LQFRPH7KHGLVWULEXWLRQRIFRQVXPSWLRQSRVVLELOLWLHVRUSRVWWD[LQFRPHLVKLJKO\LQIOXHQFHGE\

WD[DWLRQEXWDOVRE\WKHH[WHQWRIIORFNLQJWRJHWKHULQWKHSUHWD[GLVWULEXWLRQRIIDPLO\ODERU LQFRPH+HQFHLWLVUHOHYDQWWRFRQVLGHUWKHLVVXHRIIORFNLQJWRJHWKHULQDQDO\VHVRIIDPLO\WD[

SROLFLHVHJWKHFKRLFHEHWZHHQLQGLYLGXDORUMRLQWWD[DWLRQ,QWKLVSDSHUZHZLOODQDO\]HZKHWKHUWKH FRPELQDWLRQRIWKHPDOHDQGIHPDOHLQFRPHFRPSRQHQWLQWKHODERULQFRPHRIWKHPDUULHGFRXSOH FRQWULEXWHVWRKLJKHULQHTXDOLW\DVLWXDWLRQWKDWZHGHQRWHE\ELUGVRIDIHDWKHUIORFNWRJHWKHU

:HZLOODQDO\]HWKHH[WHQWRIIORFNLQJWRJHWKHULQPDOHDQGIHPDOHODERULQFRPHVLQOLJKWRIWKH UDSLGLQFUHDVHLQPDUULHGZRPHQVODERUIRUFHSDUWLFLSDWLRQWKDWKDVWDNHQSODFHRYHUWKHODVWGHFDGHV ,Q1RUZD\WKHHPSOR\PHQWUDWHVIRUPDUULHGZRPHQLQFUHDVHGIURPSHUFHQWLQWR SHUFHQWLQDQGSHUFHQWLQVHH(OOLQJV WHUDQG5¡QVHQ$VDILUVWVWHSWRGLVFXVV WKHUHODWLRQEHWZHHQIORFNLQJWRJHWKHUDQGLQHTXDOLW\LQIDPLO\ODERULQFRPHLWVHHPVQDWXUDOWRDVN WRZKDWH[WHQWWKHULVHLQZRPHQVODERUIRUFHSDUWLFLSDWLRQKDVGHFUHDVHGRULQFUHDVHGIDPLO\ODERU LQFRPHLQHTXDOLW\$FRPPRQDSSURDFKWRLQYHVWLJDWHWKLVTXHVWLRQLVWRFRPSDUHWKHGLVWULEXWLRQRI IDPLO\LQFRPHZLWKDQGZLWKRXWZRPHQ¶VODERULQFRPHVHHHJ'DQ]LJHU+RUYDWK

%HWVRQDQGYDQGHU*DDJ%M|UNOXQGDQG&DQFLDQDQG5HHG+RZHYHUWKLV PHWKRGKDVVHYHUDOSUREOHPVDQGPD\OHDGWRFRQIXVLQJUHVXOWV)RUH[DPSOHE\DGGLQJZRPHQV LQFRPHWRPHQVLQFRPHLQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\LQFRPHZLOOQRUPDOO\GHFUHDVHDQG OLNHZLVHE\DGGLQJPHQVLQFRPHWRZRPHQVLQFRPHLQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\LQFRPH ZLOODOVRGHFUHDVH7KXVWKLVDSSURDFK\LHOGVUHVXOWVWKDWGHSHQGRQWKHRUGHULQJRILQFRPH

FRPSRQHQWVDQGPRUHRYHUSUHVXSSRVHVWKDWZLIHVKXVEDQGVODERUVXSSO\GHFLVLRQVDUHPDGH FRQGLWLRQDORQKXVEDQGVZLIHVHDUQLQJV

(PSLULFDODQDO\VHVRIODERUVXSSO\VKRZKRZHYHUWKDWKXVEDQGVDQGZLIHVGHFLVLRQVFRQFHUQLQJ KRXUVRISDLGZRUNDUHPDGHVLPXOWDQHRXVO\ZKLFKVXJJHVWVWKDWWKHVHWZRLQFRPHFRPSRQHQWV VKRXOGEHWUHDWHGV\PPHWULFDOO\7KHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWSURYLGHVDQDQDO\VLVRI WKHFRQWULEXWLRQVWRLQHTXDOLW\LQIDPLO\LQFRPHIURPZLIHVDQGKXVEDQGVLQFRPHVZKLFK

6HH/HUPDQDQG<LW]DNLIRUDFULWLFDOGLVFXVVLRQ

6HH'LFNHQVDQG/XQGEHUJDQG$DEHUJH'DJVYLNDQG6WU¡P

(4)

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

2XUPDLQFRQFOXVLRQLVWKDWIRUWZRLQFRPHIDPLOLHVWKHUHLVDSDWWHUQFKDUDFWHUL]HGE\IORFNLQJ WRJHWKHULHWKDWKLJKLQFRPHZRPHQDUHJHQHUDOO\PDUULHGWRKLJKLQFRPHPHQDQGORZLQFRPH ZRPHQDUHJHQHUDOO\PDUULHGWRORZLQFRPHPHQ)RURQHLQFRPHIDPLOLHVLHIDPLOLHVZKHUHRQO\

RQHVSRXVHKDVODERULQFRPHDERYHWKHWKUHVKROGJLYHQE\WKHVWDWLVWLFDOGHILQLWLRQRIODERULQFRPH FRUUHVSRQGLQJWRWKHPLQLPXPVRFLDOVHFXULW\EHQHILWWKHQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWLQWKH GHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWJLYHVDFOHDULQGLFDWLRQWKDWWKHUHLVQRWHQGHQF\RIIORFNLQJ WRJHWKHU,QIDFWIRUWKLVFDWHJRU\ZRPHQVODERULQFRPHJLYHVDQHTXDOL]LQJFRQWULEXWLRQWRIDPLO\

ODERULQFRPHLQHTXDOLW\+HQFHRXUHPSLULFDODQDO\VLVVKRZVWKDWFRQFOXVLRQVDERXWZRPHQV FRQWULEXWLRQWRIDPLO\ODERULQFRPHLQHTXDOLW\DUHKLJKO\VHQVLWLYHWRZKHWKHUWKHUHDUHRQHRUWZR ODERULQFRPHVLQWKHIDPLO\

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

RIIORFNLQJWRJHWKHULQVSRXVHVODERULQFRPH

7KHSDSHULVRUJDQL]HGDVIROORZV,Q6HFWLRQZHEULHIO\GHVFULEHWKHGDWDVRXUFHDQGJLYHD

GHVFULSWLRQRIWKHWUHQGLQWKHOHYHORIIDPLO\ODERULQFRPHZKLOH6HFWLRQSURYLGHVHVWLPDWHVRIWKH

(5)

WUHQGLQIDPLO\ODERULQFRPHLQHTXDOLW\,Q6HFWLRQZHRXWOLQHWKHGHFRPSRVLWLRQRIWKH*LQL FRHIILFLHQWVRQZKLFKRXUDQDO\VLVRIPHQVDQGZRPHQVFRQWULEXWLRQWRIDPLO\ODERULQFRPH LQHTXDOLW\UHOLHV)LQDOO\LQ6HFWLRQZHLQWURGXFHDVXPPDU\PHDVXUHRIWKHH[WHQWRIIORFNLQJ WRJHWKHUWKDWLVGHULYHGIURPWKH*LQLFRHIILFLHQWDQGDQDO\]HWRZKDWH[WHQWDWHQGHQF\RIIORFNLQJ WRJHWKHUFDQEHIRXQGLQRXUGDWD

7KHWUHQGLQIDPLOLHVODERUIRUFHSDUWLFLSDWLRQDQGODERU LQFRPH

7KLVDQDO\VLVLVEDVHGRQLQFRPHWD[UHWXUQVGDWDIURPWKH,QFRPH'LVWULEXWLRQ6XUYH\RI6WDWLVWLFV 1RUZD\IRUWKH\HDUVDQGLHDSHULRGZLWKD VXEVWDQWLDOLQFUHDVHLQPDUULHGZRPHQVODERUIRUFHSDUWLFLSDWLRQ2XUSRSXODWLRQFRQVLVWVRIPDUULHG FRXSOHVLQFOXGLQJFRKDELWDQWVZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPHRUPRUHSUHFLVHO\ODERU LQFRPHWKDWH[FHHGVWKHVWDWLVWLFDOGHILQLWLRQRIODERULQFRPHLHWKDWODERULQFRPHH[FHHGVWKH PLQLPXPVRFLDOVHFXULW\EHQHILW+HQFHRXUVWXG\LQFOXGHVFRXSOHVZKHUHHJRQHVSRXVHLV

HPSOR\HGDQGWKHRWKHULVVRFLDOVHFXULW\UHFLSLHQWEXWH[FOXGHVFRXSOHVZKHUHERWKVSRXVHVDUHVRFLDO VHFXULW\UHFLSLHQWV:HGLYLGHWKHSRSXODWLRQRIPDUULHGFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERU LQFRPHLQWRWZRJURXSVPDUULHGFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHDQGPDUULHG FRXSOHVZKHUHERWKVSRXVHVKDYHODERULQFRPH+HQFHLWPXVWEHNHSWLQPLQGWKDWLQRXUFDWHJRU\

RQO\RQHVSRXVHKDVODERULQFRPHWKHRWKHUVSRXVHPD\VWLOOKDYHVRPHODERULQFRPHSURYLGHGWKDW LWLVOHVVWKDQWKHLQFRPHOHYHOFRUUHVSRQGLQJWRWKHVWDWLVWLFDOGHILQLWLRQRIDRQHLQFRPHIDPLO\

/DERULQFRPHLVGHILQHGDVWKHVXPRILQFRPHIURPHPSOR\PHQWDQGVHOIHPSOR\PHQW,WPXVWEHNHSW LQPLQGKRZHYHUWKDWWKHDVVLJQPHQWRILQFRPHIURPIDPLO\EXVLQHVVVHOIHPSOR\PHQWWRHDFKRIWKH VSRXVHVLVVRPHZKDWDUELWUDU\7KLVLVDVRXUFHRIXQFHUWDLQW\LQWKHHVWLPDWLRQRIZLYHVDQGKXVEDQGV FRQWULEXWLRQVWRLQHTXDOLW\,QFRPHIURPVHOIHPSOR\PHQWUHSUHVHQWVKRZHYHURQDYHUDJHRQO\

SHUFHQWRIWRWDOODERULQFRPH1RWHWKDWIDPLO\ODERULQFRPHLQWKLVVWXG\PHDQVODERULQFRPHRIWKH PDUULHGFRXSOH:HKDYHQRWFRQVLGHUHGODERULQFRPHRIRWKHUIDPLO\PHPEHUV0RUHRYHUWKURXJKRXW WKLVVWXG\WKHLQFRPHFRQFHSWLVODERULQFRPHVRWKDWIDPLO\LQFRPHLQWKLVFRQWH[WPHDQVIDPLO\

ODERULQFRPH

7KLVVWXG\IRFXVHVRQLQHTXDOLW\LQWKHGLVWULEXWLRQVRIUHSRUWHGLQFRPHVLHZHGRQRWDGGUHVVWKH PRUHFRPSOH[LVVXHRIKRZZRPHQ¶VLQFUHDVHGODERUPDUNHWSDUWLFLSDWLRQKDVLQIOXHQFHGWKHGLYLVLRQ EHWZHHQPDUNHWZRUNDQGKRXVHKROGZRUNDQGKHQFHWKHGLVWULEXWLRQRIH[WHQGHGLQFRPHGHILQHGDV WKHVXPRIPRQH\LQFRPHDQGLPSXWHGYDOXHRIXQSDLGKRXVHKROGZRUN1HLWKHUKDYHZHDGGUHVVHG WKHFRQVHTXHQFHVRIDXJPHQWLQJWKHLQFRPHFRQFHSWE\FRQVXPSWLRQRIKRXVLQJRUFRQVXPSWLRQRI

(6)

SXEOLFO\SURYLGHGVHUYLFHV,QHTXDOLW\LQWKHGLVWULEXWLRQRIH[WHQGHGLQFRPHLQFOXGLQJXQSDLG KRXVHKROGSURGXFWLRQLVGLVFXVVHGLQHJ%U\DQWDQG=LFNDQG$VODNVHQDQG.RUHQ

7DEOHD'LVWULEXWLRQRIPDUULHGFRXSOHVIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERU LQFRPHE\ODERUPDUNHWVWDWXVRYHUWKHSHULRGWR3HUFHQW

2QO\RQHVSRXVH

KDVODERULQFRPH %RWKVSRXVHV

KDYHODERULQFRPH 1XPEHURI REVHUYDWLRQV

$VGHPRQVWUDWHGE\7DEOHDWKHSUHYDOHQFHRIWKHWZRLQFRPHIDPLO\KDVLQFUHDVHGFRQVLGHUDEO\

7KHSURSRUWLRQRIRQHLQFRPHFRXSOHVZDVVKDUSO\UHGXFHGIURPWRDQGFRQWLQXHGWRIDOO RYHUWKHVDQGV,QWKHSURSRUWLRQRIRQHLQFRPHIDPLOLHVZDVOHVVWKDQKDOIWKH SURSRUWLRQLQ7KHWDEOHVKRZVWKDWWKHSUHYDOHQFHRIWZRLQFRPHIDPLOLHVLQLQIDFW H[FHHGHGWKHSUHYDOHQFHRIRQHLQFRPHIDPLOLHVLQ7KLVFKDQJHLVODUJHO\DUHIOHFWLRQRIWKH UDSLGLQFUHDVHLQPDUULHGZRPHQ¶VODERUIRUFHSDUWLFLSDWLRQLQSDUWLFXODUGXULQJWKHODWHVDQG HDUO\VDQGLVDFRQVHTXHQFHRIWKHFKDQJHVLQSRVVLELOLWLHVDQGSUHIHUHQFHVIRUHGXFDWLRQIRU ZRPHQWKURXJKWKHVDQGV

7DEOHE'LVWULEXWLRQRIPDUULHGFRXSOHVZLWKFKLOGUHQIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVH KDVODERULQFRPHE\ODERUPDUNHWVWDWXVRYHUWKHSHULRGWR3HUFHQW

2QO\RQHVSRXVH

KDVODERULQFRPH %RWKVSRXVHV

KDYHODERULQFRPH 1XPEHURI REVHUYDWLRQV

7DEOHEVKRZVWKHGLVWULEXWLRQRIRQHLQFRPHDQGWZRLQFRPHFRXSOHVZLWKFKLOGUHQGHILQHGDV FKLOGUHQ\HDUVDQG\RXQJHUOLYLQJLQWKHKRXVHKROG:HVHHWKDWFRXSOHVZLWKFKLOGUHQKDYH IROORZHGWKHVDPHSDWWHUQLQWKHVKLIWIURPWKHRQHLQFRPHIDPLO\WRWKHWZRLQFRPHIDPLO\7KLVLV

(7)

FORVHO\UHODWHGWRWKHLQWURGXFWLRQRIJHQHURXVIDPLO\SROLFLHVLQ1RUZD\VXFKDVSDLGSDUHQWDOOHDYH DQGVXEVLGL]HGFKLOGFDUHDQGDOVRWRFKDQJHVLQHGXFDWLRQDQGZRUNSDWWHUQVIRUZRPHQ

$VPHQWLRQHGDERYHWKH,QFRPH'LVWULEXWLRQ6XUYH\RI6WDWLVWLFV1RUZD\FODVVLILHVDSHUVRQDV KDYLQJODERULQFRPHLIWKHODERULQFRPHH[FHHGVWKHPLQLPXPVRFLDOVHFXULW\EHQHILW$FRQVHTXHQFH RIWKLVLVWKDWPDQ\ZRPHQZLWKSDUWWLPHMREVDUHQRWFODVVLILHGLQWKHFDWHJRU\RIKDYLQJODERU LQFRPH)RULQVWDQFHLQPHDQODERULQFRPHIRUZRPHQZKRZHUHQRWFODVVLILHGLQWKHFDWHJRU\

RIKDYLQJODERULQFRPHZDVDERXW12.:KHQZHXVHWKHWHUPKDVODERULQFRPHWRGHQRWH WKHODERUPDUNHWVWDWXVRIDSHUVRQLWPXVWEHUHDGDVKDVODERULQFRPHDERYHWKHWKUHVKROGRIWKH PLQLPXPVRFLDOVHFXULW\EHQHILW

)LJXUH$QQXDOPHDQODERULQFRPHIRUPDUULHGPHQPDUULHGZRPHQDQGPDUULHGFRXSOHV ZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPH12.

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

$QQ XDOP HDQ LQFR PH LQ SULF HV

0DUULHGZRPHQ 0DUULHGPHQ

(8)

)LJXUHVKRZVWKDWZRPHQKDYHFRQWULEXWHGVXEVWDQWLDOO\WRWKHJURZWKLQIDPLO\ODERULQFRPHRYHU WKHUHFHQWGHFDGHV$VWKHIROORZLQJILJXUHVZLOOLQGLFDWHWKHUHODWLYHFRQWULEXWLRQVIURPPHQDQG ZRPHQWRJURZWKLQIDPLO\ODERULQFRPHYDU\EHWZHHQWKHRQHDQGWZRLQFRPHIDPLOLHV

)LJXUH$QQXDOPHDQODERULQFRPHIRUPDUULHGPHQPDUULHGZRPHQDQGPDUULHGFRXSOHV ZKHUHRQO\RQHVSRXVHKDVODERULQFRPH12.

)LJXUHVKRZVWKDWIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHWKHUDWLREHWZHHQZRPHQV DQGPHQVODERULQFRPHKDVLQFUHDVHGVWHDGLO\RYHUWKHSHULRG)RUWKLVJURXSJURZWKLQUHDOIDPLO\

ODERULQFRPHKDVEHHQORZHUWKDQIRUWKHRWKHUJURXSVEXWZRPHQKDYHFRQWULEXWHGPRUHWKDQPHQWR JURZWKLQIDPLO\ODERULQFRPHRYHUWKHSHULRG:RPHQVODERULQFRPHZDVRQO\DERXWSHUFHQWRI PHQVODERULQFRPHLQDQGLQFUHDVHGWRDERXWSHUFHQWLQ7KLVLVDUHVXOWRILQFUHDVHG SDUWWLPHHPSOR\PHQWIRUZRPHQDWLQFRPHOHYHOVEHORZWKHVWDWLVWLFDOGHILQLWLRQRIODERULQFRPH

(9)

)LJXUH$QQXDOPHDQODERULQFRPHIRUPDUULHGPHQPDUULHGZRPHQDQGPDUULHGFRXSOHV ZKHUHERWKVSRXVHVKDYHODERULQFRPH12.

)RUFRXSOHVZLWKWZRODERULQFRPHV)LJXUHVKRZVWKDWWKHUDWLREHWZHHQPHQVDQGZRPHQVODERU LQFRPHVKDVEHHQIDLUO\VWDEOHDWDERXWSHUFHQWRYHUWKHSHULRGDQGFORVHWRSHUFHQWLQ)RU WKLVJURXSERWKPHQDQGZRPHQKDYHFRQWULEXWHGWRJURZWKLQIDPLO\ODERULQFRPHRYHUWKHSHULRG 7KHODUJHJDSEHWZHHQWKHOHYHOVRIPHQVDQGZRPHQVODERULQFRPHKRZHYHULVDFRQVHTXHQFHERWK RIRYHUUHSUHVHQWDWLRQRIZRPHQLQORZHUSDLGYRFDWLRQVDQGMREVRIWKHODUJHQXPEHURIZRPHQ KROGLQJSDUWWLPHMREVDQGRIZRPHQKDYLQJFDUHHULQWHUUXSWLRQVWKDWVORZGRZQSURPRWLRQDQG LQFRPHJURZWK

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

7KHLQFRPHGDWDVXPPDUL]HGLQ)LJXUHVDUHXVHGIRUWKHIROORZLQJDQDO\VLVRILQFRPH

LQHTXDOLW\:HKDYHQRWDGGUHVVHGWKHLVVXHRIHTXLYDOHQFHVFDOHVDVWKHIRFXVRIWKLVDUWLFOHLVRQWKH LQHTXDOLW\LQWKHVRXUFHVRIIDPLO\ODERULQFRPHUDWKHUWKDQRQLQFRPHDQGFRQVXPSWLRQH[SHQGLWXUH DVGHWHUPLQDQWVRIZHOIDUH7KHUHVXOWVQRQHWKHOHVVLQGLFDWHLQHTXDOLWLHVLQFRQVXPSWLRQSRVVLELOLWLHV DQGWKXVLQHFRQRPLFZHOIDUH

(10)

7KHWUHQGLQIDPLO\ODERULQFRPHLQHTXDOLW\

/RUHQ]FXUYHVDQGGHFLOHWDEOHV

:HQRZIRFXVRQGHVFULSWLRQVRILQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPHDQGLWV

FRPSRQHQWVKHUHPHDVXUHGE\WKH/RUHQ]FXUYHVDQGFRUUHVSRQGLQJGHFLOHWDEOHVDQGLQ6HFWLRQ VXPPDUL]HGE\WKH*LQLFRHIILFLHQW

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{0 X}

( ) ( )

⁼^{/ X X}

$VLQGLFDWHGE\$DEHUJHWKHDUHDEHWZHHQWKHVFDOHGFRQGLWLRQDOPHDQFXUYHDQGLWVHJDOLWDULDQ OLQHIRUPVDKHOSIXOFRPSOHPHQWWRWKH*LQLFRHIILFLHQWDVDVXPPDU\PHDVXUHRILQHTXDOLW\7KLV PHDVXUHDSSHDUVWREHLGHQWLFDOWRDPHDVXUHRILQHTXDOLW\WKDWZDVLQWURGXFHGE\%RQIHUURQL 7KHHVVHQWLDOGLIIHUHQFHEHWZHHQWKH*LQLFRHIILFLHQWDQGWKH%RQIHUURQLFRHIILFLHQW%GLVSOD\HGLQ 7DEOHV%DQG%LQ$SSHQGL[%LVWKDWWKH%RQIHUURQLFRHIILFLHQWH[KLELWVPRUHLQHTXDOLW\DYHUVLRQ WKDQWKH*LQLFRHIILFLHQW

7KHUHZDVFRQVLGHUDEO\KLJKHULQHTXDOLW\LQWKHGLVWULEXWLRQRIPDUULHGZRPHQVODERULQFRPHLQ EXWWKHVHLQFRPHVZHUHIDLUO\VPDOOIRUPRVWZRPHQZLWKODERULQFRPH)RUFRXSOHVZLWKWZRODERU LQFRPHVWKH/RUHQ]FXUYHIRUPDUULHGZRPHQZDVPXFKFORVHUWRWKH/RUHQ]FXUYHVIRUPDUULHGPHQ DQGIRUIDPLO\ODERULQFRPH%\WKHJDSEHWZHHQLQHTXDOLW\LQWKHGLVWULEXWLRQVRIPHQVDQG ZRPHQVODERULQFRPHKDGQDUURZHGFRQVLGHUDEO\7KLVDJDLQUHIOHFWVWKHGHYHORSPHQWIURPWKHRQH LQFRPHIDPLO\WRWKHWZRLQFRPHIDPLO\DVWKHPRVWSUHYDOHQWIDPLO\W\SH

6HH$DEHUJH

(11)

)LJXUHD/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPH

)LJXUHE/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHRQO\RQHVSRXVHKDVODERULQFRPH

)LJXUHF/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHERWKVSRXVHVKDYHODERULQFRPH

)LJXUHD/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPH

)LJXUHE/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHRQO\RQHVSRXVHKDVODERULQFRPH

)LJXUHF/RUHQ]FXUYHVIRUGLVWULEXWLRQ RIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHV ZKHUHERWKVSRXVHVKDYHODERULQFRPH

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Married couples Married men Married women

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Married couples Married men Married women 0

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

(12)

/RUHQ]FXUYHVDQG0FXUYHVJLYHFRPSOHWHLQIRUPDWLRQRQLQHTXDOLW\LQWKHFRUUHVSRQGLQJLQFRPH GLVWULEXWLRQV,QRUGHUWRJLYHDQLQGLFDWLRQRIWKHPDJQLWXGHRILQHTXDOLW\LQWKHLQFRPHGLVWULEXWLRQ ZHZLOOFRQVLGHUWKHGLVWULEXWLRQRIODERULQFRPHIRUWKHYDULRXVIDPLO\W\SHVE\GHFLOHJURXSV7DEOHV DQGVKRZPHDQODERULQFRPHLQE\GHFLOHJURXSIRUPDUULHGFRXSOHVDQG

FRUUHVSRQGLQJLQFRPHVIRUPDUULHGPHQDQGPDUULHGZRPHQIRUHDFKRIWKHWKUHHIDPLO\FDWHJRULHV

7DEOH0HDQODERULQFRPHE\GHFLOHJURXSVIRUPDUULHGFRXSOHVZLWKFRUUHVSRQGLQJLQFRPHV IRUPDUULHGPHQDQGPDUULHGZRPHQIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPH 12.

'HFLOHJURXS 0DUULHG

FRXSOHV 0DUULHG

PHQ 0DUULHG

ZRPHQ 0DUULHGZRPHQ¶V ODERULQFRPHLQ SHUFHQWRIPHQ¶V

ODERULQFRPH

$OO

7DEOH0HDQODERULQFRPHE\GHFLOHJURXSVIRUPDUULHGFRXSOHVZLWKFRUUHVSRQGLQJLQFRPHV IRUPDUULHGPHQDQGPDUULHGZRPHQIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPH 12.

'HFLOHJURXS 0DUULHG

FRXSOHV 0DUULHG

PHQ 0DUULHG

ODERULQFRPH

$OO

(13)

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

7DEOH0HDQODERULQFRPHE\GHFLOHJURXSVIRUPDUULHGFRXSOHVZLWKFRUUHVSRQGLQJLQFRPHV IRUPDUULHGPHQDQGPDUULHGZRPHQIRUFRXSOHVZKHUHERWKVSRXVHVKDYHODERULQFRPH 12.

'HFLOHJURXS 0DUULHG

FRXSOHV 0DUULHG

PHQ 0DUULHG

ODERULQFRPH

$OO

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

(14)

*LQLFRHIILFLHQWV

,QWKLVVHFWLRQZHIRFXVRQLQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPHDQGLWVFRPSRQHQWV PHDVXUHGE\WKH*LQLFRHIILFLHQW)LJXUHVKRZVWKH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERU LQFRPHIRUPDUULHGPHQPDUULHGZRPHQDQGPDUULHGFRXSOHVIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVH KDVODERULQFRPHIRUVHOHFWHG\HDUVRYHUWKHSHULRG)LJXUHVDQGVKRZWKH

FRUUHVSRQGLQJ*LQLFRHIILFLHQWVIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHDQGFRXSOHV ZKHUHERWKVSRXVHVKDYHODERULQFRPHUHVSHFWLYHO\7KHEDFNJURXQGGDWDIRU)LJXUHVDQG ZLWKVWDQGDUGGHYLDWLRQVRIWKHHVWLPDWHG*LQLFRHIILFLHQWVDUHUHSRUWHGLQ7DEOH%LQ$SSHQGL[%

)LJXUH7KH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGFRXSOHVIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPH

0DUULHGPHQ 0DUULHGZRPHQ 0DUULHGFRXSOHV

)LJXUHVKRZVWKDWIRUPDUULHGFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPHLQHTXDOLW\LQWKH GLVWULEXWLRQRIZRPHQ¶VODERULQFRPHKDVGHFUHDVHGFRQVLGHUDEO\RYHUWKHSHULRG7KLVUHIOHFWVWKH WUDQVLWLRQIURPWKHRQHLQFRPHIDPLO\WRWKHWZRLQFRPHIDPLO\DVWKHPRVWSUHYDOHQWIDPLO\W\SHDV GHVFULEHGLQUHODWLRQWR7DEOH5HFDOOWKDWLQSHUFHQWRIWKHIDPLOLHVKDGRQO\RQHODERU LQFRPHZKHUHDVLQPRUHWKDQSHUFHQWRIWKHIDPLOLHVKDGWZRODERULQFRPHV7KHUHGXFWLRQLQ LQHTXDOLW\LQZRPHQVODERULQFRPHFRUUHVSRQGVWRWKHUHVXOWIRXQGE\%M|UNOXQGZKLFKLQKLV DQDO\VLVLVWKHUHDVRQZK\ZRPHQVLQFRPHFRQWULEXWHGWRDUHGXFWLRQLQIDPLO\LQFRPHLQHTXDOLW\

,QHTXDOLW\LQWKHGLVWULEXWLRQRIPHQVODERULQFRPHKDVLQFUHDVHGVRPHZKDWRYHUWKHSHULRG ,QHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPHKDVEHHQIDLUO\VWDEOHRYHUWKHSHULRGZLWKD VPDOOUHGXFWLRQLQWKH*LQLFRHIILFLHQWIURPLQWRLQ+RZHYHUWKLVFKDQJHLV QRWVWDWLVWLFDOO\VLJQLILFDQWDWSHUFHQWOHYHO

(15)

)LJXUH7KH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGFRXSOHVIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPH

)LJXUHVKRZVWKDWIRUPDUULHGFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHLQHTXDOLW\LQWKH GLVWULEXWLRQRIZRPHQVODERULQFRPHKDVGHFUHDVHGVRPHZKDWRYHUWKHSHULRGEXWLWLVVWLOOYHU\KLJK DVFRPSDUHGWRWKHLQHTXDOLW\LQWKHGLVWULEXWLRQRIPHQ¶VODERULQFRPHWKDWLQIDFWKDVLQFUHDVHGRYHU WKHSHULRG)DPLOLHVZLWKRQO\RQHODERULQFRPHDUHDKLJKO\KHWHURJHQHRXVJURXSZLWKDODUJH YDULDWLRQLQZRPHQ¶VDFWXDOODERUIRUFHSDUWLFLSDWLRQUDQJLQJIURPWKRVHZKRDUHIXOOWLPH

KRPHPDNHUVZLWKQRLQFRPHWRWKRVHZLWKSDUWWLPHMREV\LHOGLQJLQFRPHVMXVWEHORZWKHWKUHVKROG IRUEHLQJFODVVLILHGDVKDYLQJODERULQFRPHWRWKRVHZLWKKLJKLQFRPHVFODVVLILHGLQWKLVFDWHJRU\

EHFDXVHWKHLUVSRXVHKDVQRODERULQFRPH6LQFHWKHDJHRIWKHKXVEDQGRQDYHUDJHLVKLJKHUWKDQWKH DJHRIWKHZLIHWKLVJURXSZLOOFRPSULVHFRXSOHVZKHUHWKHZLIHKDVODERULQFRPHDQGWKHKXVEDQGLV UHWLUHG+HQFHWKLVJURXSFRQWDLQVERWKFRXSOHVZKRDFWLYHO\KDYHFKRVHQDORZOHYHORIODERUVXSSO\

DQGFRXSOHVZKRKDYHORZODERUVXSSO\GXHWRDJHKHDOWKRURWKHUH[RJHQRXVIDFWRUV,QHTXDOLW\LQWKH GLVWULEXWLRQRIIDPLO\LQFRPHKDVLQFUHDVHGVOLJKWO\IURPLQWRLQ+RZHYHU WKHGLIIHUHQFHPXVWEHLQWHUSUHWHGFDXWLRXVO\LQOLJKWRIWKHVWDQGDUGGHYLDWLRQV

(16)

)LJXUH7KH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHGPHQPDUULHG ZRPHQDQGFRXSOHVIRUFRXSOHVZKHUHERWKVSRXVHVKDYHODERULQFRPH

)RUPDUULHGFRXSOHVZLWKWZRODERULQFRPHVVHH)LJXUHWKHGDWDFOHDUO\LQGLFDWHWKDWLQHTXDOLW\LQ WKHGLVWULEXWLRQVRIPHQVODERULQFRPHZRPHQVODERULQFRPHDQGIDPLO\ODERULQFRPHKDVEHHQ IDLUO\VWDEOHRYHUWKHSHULRG,QHTXDOLW\DVPHDVXUHGE\WKH*LQLFRHIILFLHQWLQWKHGLVWULEXWLRQRI IDPLO\ODERULQFRPHZDVLQDQGLQ$SSOLFDWLRQRIDVLPXOWDQHRXVWHVW SURFHGXUHVKRZVWKDWWKHGLIIHUHQFHVEHWZHHQWKH*LQLFRHIILFLHQWVDUHWRRVPDOOWREHFODLPHG VWDWLVWLFDOO\VLJQLILFDQWDWSHUFHQWOHYHO)RUWKHHDUO\\HDUVLQWKLVSHULRGLQHTXDOLW\LQWKH

GLVWULEXWLRQRIZRPHQVODERULQFRPHZDVVRPHZKDWODUJHUWKDQLQHTXDOLW\LQWKHGLVWULEXWLRQRIPHQV ODERULQFRPH$IWHULQHTXDOLW\LQWKHGLVWULEXWLRQRIZRPHQ¶VODERULQFRPHKDVEHHQOHVVWKDQWKH LQHTXDOLW\LQWKHGLVWULEXWLRQRIPHQ¶VODERULQFRPH7KLVJURXSLVPXFKPRUHKRPRJHQRXVZLWK UHVSHFWWRODERUPDUNHWFKRLFHVWKDQWKHRQHLQFRPHIDPLOLHV

7DEOH%SUHVHQWVWKH*LQLFRHIILFLHQWVLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHGFRXSOHVZLWK FKLOGUHQ1RWHWKDWLQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\LQFRPHLQJHQHUDOLVVRPHZKDWVPDOOHUIRU FRXSOHVZLWKFKLOGUHQ7KLVUHIOHFWVWKDWWKHFDWHJRU\PDUULHGFRXSOHVZLWKFKLOGUHQLVDPRUH

KRPRJHQRXVJURXSZLWKUHVSHFWWRLQFRPHDJHZHDOWKGHEWWLPHFRQVWUDLQWVIRUZRUNDQGFKLOGFDUH REOLJDWLRQVDQGRWKHUUHOHYDQWFKDUDFWHULVWLFVDVFRPSDUHGWRWKHDYHUDJHIRUDOOPDUULHGFRXSOHV

)LJXUHVDQGVKRZWKDWIRUHDFKIDPLO\FDWHJRU\LQHTXDOLW\LQWKHGLVWULEXWLRQRIIDPLO\

ODERULQFRPHLVOHVVWKDQWKHLQHTXDOLW\LQWKHGLVWULEXWLRQRIODERULQFRPHIRUHDFKVSRXVH7KLVGRHV QRWQHFHVVDULO\LPSO\WKDWZRPHQZLWKORZODERULQFRPHDUHPDUULHGWRPHQZLWKKLJKODERULQFRPH DQGZRPHQZLWKKLJKODERULQFRPHDUHPDUULHGWRPHQZLWKORZODERULQFRPH$ZLGHVSUHDGWHQGHQF\

(17)

RIIORFNLQJWRJHWKHUZLOOFRXQWHUDFWWKHHTXDOL]LQJHIIHFWRIIDPLO\IRUPDWLRQ+HQFHZHQHHGWR FRQVLGHUDPRUHSUHFLVHPHDVXUHRIWKHH[WHQWRIIORFNLQJWRJHWKHU%HIRUHZHGHYHORSWKHLQGH[RI IORFNLQJWRJHWKHUWKHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWZLOOEHLQWURGXFHG

'HFRPSRVLWLRQRIIDPLO\ODERULQFRPHLQHTXDOLW\

7KLVVHFWLRQLVGHYRWHGWRWKHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWDQGDQHPSLULFDODSSOLFDWLRQRIWKH GHFRPSRVLWLRQPHWKRGWRWKH1RUZHJLDQLQFRPHGDWDIRUVSRXVHVODERULQFRPH,QHTXDOLW\LQWKH GLVWULEXWLRQRIIDPLO\ODERULQFRPHLVGHFRPSRVHGLQWRLQHTXDOLW\FRQWULEXWLRQVIURPWZRVRXUFHV ODERULQFRPHRIPDUULHGPHQDQGODERULQFRPHRIPDUULHGZRPHQ7KHSXUSRVHRIWKHGHFRPSRVLWLRQ RIWKH*LQLFRHIILFLHQWLVWRLGHQWLI\WKHFRQWULEXWLRQIURPHDFKLQFRPHVRXUFHWRLQHTXDOLW\LQWRWDO ODERULQFRPH$VVXPHWKDWLQFRPH;LVWKHVXPRIVGLIIHUHQWLQFRPHFRPSRQHQWV

=

Ê

^V ^L

L

; ;

,QWKLVSDSHU;FDQEHVHHQDVODERULQFRPHRIWKHPDUULHGFRXSOHZKHUH;LVWKHODERULQFRPHRIWKH KXVEDQGDQG;LVWKHODERULQFRPHRIWKHZLIH$VZDVGHPRQVWUDWHGE\5DRZHKDYHWKDW*

DGPLWVWKHIROORZLQJGHFRPSRVLWLRQ

= =

=

Ê

_L^V ^L ^L =

Ê

_L^V ^L

* m g X *

m

ZKHUHm m_L LVWKHUDWLREHWZHHQWKHPHDQVRI;DQG;UHVSHFWLYHO\DQGWKHFRQFHQWUDWLRQFRHIILFLHQW gLFDQEHLQWHUSUHQWHGDVWKHFRQGLWLRQDO*LQLFRHIILFLHQWRILQFRPHFRPSRQHQWLJLYHQWKHUDQNRUGHU LQ;ZKHUH;; ; _Q DUHWKHRUGHUHGREVHUYDWLRQVRILQFRPHIRUHDFKXQLWM=Q7KH UDWLRm m_L LVGHQRWHGWKHLQFRPHVKDUHRIFRPSRQHQWLLQWRWDOLQFRPH7KHSURGXFWRIWKHLQFRPH VKDUHDQGWKHFRQFHQWUDWLRQFRHIILFLHQWLVGHQRWHGWKHLQHTXDOLW\FRQWULEXWLRQ X *_L 7KHUHODWLYH LQHTXDOLW\FRQWULEXWLRQ X * *_L LVGHQRWHGWKHLQHTXDOLW\VKDUH

1RWHWKDWgLLVDPHDVXUHRIFRUUHODWLRQEHWZHHQLQFRPHFRPSRQHQW;LDQGWRWDOLQFRPH;$VVXPH IRUH[DPSOHWKDWm_L >7KHQDQHJDWLYHYDOXHRIgLH[SUHVVHVQHJDWLYHFRUUHODWLRQZKLFKPHDQVWKDW LQFRPHFRPSRQHQWLJLYHVDQHTXDOL]LQJFRQWULEXWLRQWRWRWDOLQHTXDOLW\LHLQFRPHFRPSRQHQWL FRQWULEXWHVWROHVVLQHTXDOLW\LQWKHGLVWULEXWLRQRI;$SRVLWLYHYDOXHRIgLH[SUHVVHVSRVLWLYH FRUUHODWLRQZKLFKPHDQVWKDWLQFRPHFRPSRQHQWLJLYHVDGLVHTXDOL]LQJFRQWULEXWLRQWRWRWDO

LQHTXDOLW\LHLQFRPHFRPSRQHQWLFRQWULEXWHVWRKLJKHULQHTXDOLW\LQWKHGLVWULEXWLRQRI;7KHFDVH RIg_L=FRUUHVSRQGVWRDVLWXDWLRQZKHUHHYHU\KRXVHKROGUHFHLYHVDQHTXDODPRXQWRILQFRPH FRPSRQHQWL7KXVLQFRPHFRPSRQHQWLGRHVQHLWKHUJLYHDQHTXDOL]LQJQRUDGLVHTXDOL]LQJ

(18)

FRQWULEXWLRQWRWRWDOLQHTXDOLW\:HVD\WKDWLQFRPHFRPSRQHQWLJLYHVDQHXWUDOFRQWULEXWLRQWRWRWDO LQHTXDOLW\)RUm_L <SRVLWLYHYDOXHVRIgLH[SUHVVDQHTXDOL]LQJFRQWULEXWLRQWRWRWDOLQHTXDOLW\DQG QHJDWLYHYDOXHVRIgLH[SUHVVDGLVHTXDOL]LQJFRQWULEXWLRQWRWRWDOLQHTXDOLW\

/HWXVQRZIXUWKHUH[DPLQHWKHIDFWRUVWKDWGHWHUPLQHWKHFRQFHQWUDWLRQFRHIILFLHQWV5HZULWLQJ ZHKDYHWKDW

V V

L L L

L L

L L L

* *

*

m g m g

m m

= =

=

Ê

=

Ê

ZKHUH*LLVWKHPDUJLQDOLQHTXDOLW\RILQFRPHFRPSRQHQWLDQGWKHUDWLRg_L *_LGHQRWHVWKHORFDWLRQ FRPSRQHQWRILQFRPHFRPSRQHQWL%\GHILQLWLRQWKHFRQFHQWUDWLRQFRHIILFLHQWLVWKHSURGXFWRIWKH PDUJLQDOLQHTXDOLW\DQGWKHORFDWLRQFRPSRQHQW,IWKHLQFRPHXQLWVKDYHWKHVDPHORFDWLRQLQWKH UDQNLQJRI;LDVLQWKHUDQNLQJRI;WKHQg_L *_L=2WKHUZLVHg_L *_L <

$ORZORFDWLRQFRPSRQHQWLQGLFDWHVWKDWWKHORFDWLRQRIZRPHQVODERULQFRPHLQWKHUDQNLQJRIIDPLO\

ODERULQFRPHUHSUHVHQWVDQHTXDOL]LQJFRQWULEXWLRQWRLQHTXDOLW\LQIDPLO\LQFRPH,QWXLWLYHO\

LQWHUSUHWHGDORZORFDWLRQFRPSRQHQWLQGLFDWHVWKDWIORFNLQJWRJHWKHULVOHVVSURQRXQFHGDQGWKDW ZRPHQZLWKORZODERULQFRPHPD\IUHTXHQWO\EHIRXQGLQFRXSOHVZLWKKLJKIDPLO\LQFRPH

,QWKHIROORZLQJLWLVXVHIXOWRFRQVLGHUWKHHIIHFWRQWKH*LQLFRHIILFLHQWRIDFKDQJHLQWKHPHDQRIDQ LQFRPHFRPSRQHQW%\GLIIHUHQWLDWLRQRIZHILQGWKDW

ORJ

= ËÌ - ÛÜ =

Í Ý

L L L

* L V

* m g

m m

)URPZHVHHWKDWWKH*LQLFRHIILFLHQWZLOOLQFUHDVHLIWKHFRQFHQWUDWLRQFRHIILFLHQWLVODUJHUWKDQ WKHRYHUDOOLQHTXDOLW\DQGGHFUHDVHLIWKHFRQFHQWUDWLRQFRHIILFLHQWLVVPDOOHUWKDWWKHRYHUDOO

LQHTXDOLW\SURYLGHGWKDWWKHFRQFHQWUDWLRQFRHIILFLHQWVUHPDLQFRQVWDQW

7KHUHVXOWVRIWKHGHFRPSRVLWLRQVRIWKHODERULQFRPHLQHTXDOLW\DVPHDVXUHGE\WKH*LQLFRHIILFLHQW IRUHDFKRIWKHWKUHHJURXSVRIPDUULHGFRXSOHVDUHJLYHQLQ7DEOHVDQGIRUWKHILUVWDQG ODVW\HDURIWKHSHULRG6WDQGDUGGHYLDWLRQVDUHIRXQGLQ7DEOH%LQ$SSHQGL[%7KHILJXUHVIRU UHSUHVHQWDJJUHJDWHVWDWLVWLFVRIWKHPRUHGHWDLOHGLQIRUPDWLRQJLYHQLQ7DEOHVDQG

'HFRPSRVLWLRQVIRURWKHU\HDUVDUHJLYHQLQ7DEOHV&D&EDQG&FLQ$SSHQGL[&

(19)

7DEOH'HFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHG FRXSOHVZLWKUHVSHFWWRODERULQFRPHIRUPDUULHGPHQDQGODERULQFRPHIRUPDUULHG ZRPHQIRUFRXSOHVZKHUHDWOHDVWRQHVSRXVHKDVODERULQFRPHDQG

<HDU ,QHTXDOLW\ ,QFRPH

FRPSRQHQW ,QHTXDOLW\

VKDUH ,QFRPH

VKDUH &RQFHQ WUDWLRQ FRHIILFLHQW

0DUJLQDO

LQHTXDOLW\ /RFDWLRQ FRPSRQHQW

0HQ

:RPHQ

0HQ

:RPHQ

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

(TXLYDOHQWO\WKLVFDQEHH[SUHVVHGE\FRPSDULQJWKHLQFRPHVKDUHVDQGLQHTXDOLW\VKDUHV:RPHQV LQFRPHVKDUHLQIDPLO\ODERULQFRPHZDVSHUFHQWLQDQGSHUFHQWLQ:RPHQV LQHTXDOLW\VKDUHZDVSHUFHQWLQDQGSHUFHQWLQ7KLVLPSOLHVWKDWWKHLQHTXDOLW\VKDUH UHODWLYHWRWKHLQFRPHVKDUHZDVODUJHUIRUPDUULHGZRPHQWKDQIRUPDUULHGPHQLQZKHUHDVLQ WKHLQHTXDOLW\VKDUHUHODWLYHWRWKHLQFRPHVKDUHZDVODUJHUIRUPDUULHGPHQWKDQIRUPDUULHG ZRPHQ%\GHILQLWLRQWKLVVLPSO\PHDQVWKDWWKHFRQFHQWUDWLRQFRHIILFLHQWIRUZRPHQVODERULQFRPH ZDVWKHODUJHULQDQGWKHFRQFHQWUDWLRQFRHIILFLHQWIRUPHQVODERULQFRPHZDVWKHODUJHULQ VRWKDWLQZRPHQVODERULQFRPHVZHUHPRUHVWURQJO\FRUUHODWHGZLWKIDPLO\LQFRPHWKDQ PHQVLQFRPHVZKHUHDVLQPHQVODERULQFRPHVZHUHPRUHVWURQJO\FRUUHODWHGZLWKIDPLO\

LQFRPH

7KHH[WHQWWRZKLFKPHQDQGZRPHQFRQWULEXWHWRIDPLO\LQFRPHLQHTXDOLW\KDVFKDQJHGRYHUWLPH EXWWKHSDWWHUQRIERWKVSRXVHVFRQWULEXWLQJWRLQHTXDOLW\KDVUHPDLQHGWKHVDPH'HVSLWHWKHFKDQJHLQ WKHUHODWLYHLQHTXDOLW\FRQWULEXWLRQVIRUPHQDQGZRPHQRYHUWLPHWKHSRVLWLYHFRQFHQWUDWLRQ

FRHIILFLHQWVIRUPHQVDQGZRPHQVLQFRPHVERWKLQDQGLQGLFDWHDSDWWHUQRIIORFNLQJ WRJHWKHUZKHUHE\ZRPHQVODERULQFRPHVFOHDUO\FRQWULEXWHWRLQHTXDOLW\LQIDPLO\LQFRPH +RZHYHUDVZLOOEHGLVFXVVHGLQ6HFWLRQDSRVLWLYHFRQFHQWUDWLRQFRHIILFLHQWIRUZRPHQVODERU LQFRPHGRHVQRWJLYHSUHFLVHLQIRUPDWLRQRQWKHH[WHQWRIIORFNLQJWRJHWKHU%HIRUHZHUHWXUQWRWKLV

(20)

TXHVWLRQZHZLOOQRZFRQVLGHUWKHGHFRPSRVLWLRQRI*LQLFRHIILFLHQWVIRURQHDQGWZRLQFRPH IDPLOLHV

7DEOH'HFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHG FRXSOHVZLWKUHVSHFWWRODERULQFRPHIRUPDUULHGPHQDQGODERULQFRPHIRUPDUULHG ZRPHQIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHDQG

VKDUH ,QFRPH

0DUJLQDO

0HQ

:RPHQ

0HQ

:RPHQ

7DEOHVKRZVWKHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWIRUFRXSOHVZKHUHRQO\RQHVSRXVHKDV ODERULQFRPH7KHVWULNLQJUHVXOWLQ7DEOHLVWKDWFRQFHQWUDWLRQFRHIILFLHQWVIRUZRPHQVODERU LQFRPHDUHQHJDWLYHERWKLQDQG7KLVPHDQVWKDWIRUWKHVXEJURXSRIIDPLOLHVZLWKRQO\

RQHODERULQFRPHZRPHQVODERULQFRPHLQIDFWUHSUHVHQWVDQHTXDOL]LQJFRQWULEXWLRQWRLQHTXDOLW\LQ IDPLO\LQFRPH5RXJKO\VSHDNLQJIDPLOLHVLQORZHUGHFLOHVKDYHDODUJHUVKDUHRIZRPHQVODERU LQFRPHWKDQIDPLOLHVLQKLJKHUGHFLOHV$VPHQWLRQHGEHIRUHWKHFRXSOHVZLWKRQHODERULQFRPHDUH OHVVKRPRJHQRXVWKDQWZRLQFRPHIDPLOLHVWKLVJURXSFRPSULVHVHJFRXSOHVZKHUHRQHVSRXVHLVVWLOO LQWKHODERUIRUFHDQGWKHRWKHULVUHWLUHG7KHQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWIRUZRPHQVODERU LQFRPHVXJJHVWVWKDWWKHUHLVQRWHQGHQF\RIIORFNLQJWRJHWKHULQWKLVJURXS)RURQHLQFRPH

IDPLOLHVZRPHQVLQFRPHVKDUHLQIDPLO\ODERULQFRPHZDVSHUFHQWLQDQGSHUFHQWLQ WKHODUJHLQFUHDVHUHIOHFWLQJWKHJURZWKLQSDUWWLPHHPSOR\PHQWDWLQFRPHOHYHOVEHORZWKHVWDWLVWLFDO GHILQLWLRQRIODERULQFRPH

7DEOH'HFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHG FRXSOHVZLWKUHVSHFWWRODERULQFRPHIRUPDUULHGPHQDQGODERULQFRPHIRUPDUULHG ZRPHQIRUFRXSOHVZKHUHERWKVSRXVHVKDYHODERULQFRPHDQG

VKDUH ,QFRPH

0DUJLQDO

0HQ

:RPHQ

0HQ

:RPHQ

(21)

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

+HQFHGLYLGLQJDOOPDUULHGFRXSOHVZLWKODERULQFRPHLQWRRQHDQGWZRLQFRPHIDPLOLHVZHIRXQGD VXEVWDQWLDOGLIIHUHQFHLQWZRLQFRPHIDPLOLHVDVLQWKHZKROHSRSXODWLRQZRPHQ¶VODERULQFRPH UHSUHVHQWVDGLVHTXDOL]LQJFRQWULEXWLRQWRIDPLO\ODERULQFRPHLQHTXDOLW\ZKHUHDVLQRQHLQFRPH IDPLOLHVZRPHQ¶VODERULQFRPHUHSUHVHQWVDQHTXDOL]LQJFRQWULEXWLRQWRIDPLO\ODERULQFRPH LQHTXDOLW\

7KHFRQFHQWUDWLRQFRHIILFLHQWVH[SUHVVWKHFRPSRVLWHHIIHFWRIWKHPDUJLQDOLQHTXDOLW\DQGWKHORFDWLRQ FRPSRQHQWHJWKHFRQFHQWUDWLRQFRHIILFLHQWIRUZRPHQVODERULQFRPHFRPSULVHERWKWKHHIIHFWRI WKHPDUJLQDOLQHTXDOLW\LQZRPHQVODERULQFRPHDQGWKHHIIHFWRIWKHORFDWLRQRIZRPHQVODERU LQFRPHUHODWLYHWRPHQVODERULQFRPHLQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPH7DEOHVDQG VKRZWKDWWKHORFDWLRQFRPSRQHQWLVOHVVIRUPDUULHGZRPHQWKDQIRUPDUULHGPHQLHWKHODERU LQFRPHVRIPDUULHGZRPHQKDYHDPRUHHTXDOL]LQJORFDWLRQHIIHFWRQIDPLO\ODERULQFRPHLQHTXDOLW\

DVFRPSDUHGWRWKHODERULQFRPHVRIPDUULHGPHQ7KHHTXDOL]LQJORFDWLRQHIIHFWRIZRPHQVODERU LQFRPHLVIRXQGIRUDOOWKUHHIDPLO\FDWHJRULHV)RUPDUULHGPHQWKHORFDWLRQFRPSRQHQWLVVRKLJK WKDWURXJKO\VSHDNLQJWKH\KDYHWKHVDPHORFDWLRQLQWKHUDQNLQJRIWKHLURZQODERULQFRPHDVLQWKH UDQNLQJRIIDPLO\ODERULQFRPH

:LWKLQHDFKJURXSWKHPDUJLQDOLQHTXDOLW\KDVGHFUHDVHGRYHUWLPHIRUZRPHQVODERULQFRPHDQG LQFUHDVHGRYHUWLPHIRUPHQVODERULQFRPH+RZHYHUIRUWKHSRSXODWLRQDVDZKROHDQGWKHWZR LQFRPHIDPLOLHVWKHPDUJLQDOLQHTXDOLW\LQWKHGLVWULEXWLRQRIZRPHQVODERULQFRPHFRXQWHUDFWVWKH HTXDOL]LQJORFDWLRQHIIHFWDQGWKHQHWUHVXOWLVVHHQDVDSRVLWLYHFRQFHQWUDWLRQFRHIILFLHQWLH ZRPHQVODERULQFRPHUHSUHVHQWVDGLVHTXDOL]LQJFRQWULEXWLRQWRIDPLO\LQFRPHLQHTXDOLW\)RURQH LQFRPHIDPLOLHVRQWKHRWKHUKDQGWKHHTXDOL]LQJORFDWLRQHIIHFWLVVXIILFLHQWO\KLJKWRRXWZHLJKWKH KLJKPDUJLQDOLQHTXDOLW\LQWKHGLVWULEXWLRQRIZRPHQVODERULQFRPHERWKLQDQG7KHQHW UHVXOWLVVHHQDVDQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWLHZRPHQVODERULQFRPHUHSUHVHQWVDQ

HTXDOL]LQJFRQWULEXWLRQWRIDPLO\ODERULQFRPHLQHTXDOLW\

(22)

7KHH[WHQWRIIORFNLQJWRJHWKHU

:HZLOOQRZGLVFXVVWRZKLFKH[WHQWWKHUHLVDSDWWHUQRIIORFNLQJWRJHWKHULQWKHPDWFKLQJRIODERU LQFRPHVIRUVSRXVHVVXFKWKDWZRPHQZLWKKLJKODERULQFRPHVWHQGWREHPDUULHGWRPHQZLWKKLJK ODERULQFRPHVDQGYLFHYHUVD,QWKHDQDO\VLVRIIORFNLQJWRJHWKHUZHIRFXVRQFRXSOHVZKHUHERWK VSRXVHVKDYHODERULQFRPHDQGZHVXEVHTXHQWO\FRPSDUHWKLVJURXSZLWKFRXSOHVZKHUHDWOHDVWRQH VSRXVHKDVODERULQFRPH:HGLVUHJDUGFRXSOHVZKHUHRQO\RQHVSRXVHKDVODERULQFRPHVLQFHWKLV JURXSLVVWURQJO\KHWHURJHQHRXVZLWKUHVSHFWWRODERUPDUNHWDFWLYLW\)RUVRPHIDPLOLHVLQWKLVJURXS WKHVSRXVHRIWKHLQFRPHHDUQHUPD\EHDFWLYHLQWKHODERUPDUNHWDOWKRXJKWKHODERULQFRPHLVEHORZ WKHWKUHVKROGRIWKHVWDWLVWLFDOGHILQLWLRQRIODERULQFRPH)RUWKLVVXEJURXSLWZRXOGEHUHOHYDQWWR DQDO\]HWKHH[WHQWRIIORFNLQJWRJHWKHUZLWKUHVSHFWWRODERULQFRPH+RZHYHUWKHFDWHJRU\FRXSOHV ZLWKRQO\RQHODERULQFRPHDOVRFRQWDLQVFRXSOHVZKHUHWKHVSRXVHRIWKHLQFRPHHDUQHULVQRWDFWLYH LQWKHODERUPDUNHWHJWKHVSRXVHLVUHWLUHG,QWKLVFDVHLWLVOHVVUHOHYDQWWRDQDO\]HWKHH[WHQWRI IORFNLQJWRJHWKHUZLWKUHVSHFWWRODERULQFRPH0RUHRYHULQRXUSUHFHGLQJDQDO\VLVRIFRXSOHVZLWK RQO\RQHODERULQFRPHWKHQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWVKDYHVWURQJO\LQGLFDWHGWKDWZRPHQV ODERULQFRPHUHSUHVHQWVDQHTXDOL]LQJFRQWULEXWLRQWRIDPLO\LQFRPHLQHTXDOLW\,QRWKHUZRUGVZH FRQFOXGHWKDWWKHQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWVIRUZRPHQVODERULQFRPHJLYHDFOHDULQGLFDWLRQ WKDWWKHUHLVQRWHQGHQF\RIIORFNLQJWRJHWKHUIRUWKLVJURXS

+RZHYHUIRUIDPLOLHVZLWKWZRODERULQFRPHVDQGIDPLOLHVZLWKDWOHDVWRQHODERULQFRPHWKHSRVLWLYH FRQFHQWUDWLRQFRHIILFLHQWVIRUZRPHQVODERULQFRPHGRQRWJLYHSUHFLVHLQIRUPDWLRQRQWKHH[WHQWRI IORFNLQJWRJHWKHU$SRVLWLYHFRQFHQWUDWLRQFRHIILFLHQWIRUZRPHQVODERULQFRPHPHDVXUHVWKH DVVRFLDWLRQEHWZHHQZRPHQVODERULQFRPHDQGIDPLO\ODERULQFRPHZKHUHDVDFRPSOHWHDQDO\VLVRI IORFNLQJWRJHWKHUFDOOVIRUDPHDVXUHRIWKHDVVRFLDWLRQEHWZHHQWKHODERULQFRPHVRIWKHVSRXVHV

7KLVVXJJHVWVWKDWWKHGLVWULEXWLRQZKHUHWKHREVHUYHGODERULQFRPHVRIPDUULHGPHQDQGPDUULHG ZRPHQDUHUDQGRPO\PDWFKHGPD\DFWDVDQDSSURSULDWHUHIHUHQFHGLVWULEXWLRQ7KXVWKHGHYLDWLRQ EHWZHHQWKHREVHUYHG*LQLFRHIILFLHQWRIIDPLO\ODERULQFRPHDQGWKH*LQLFRHIILFLHQWRIWKH GLVWULEXWLRQRIWKHUDQGRPO\PDWFKHGODERULQFRPHVHPHUJHVDVDUHOHYDQWEDVLVIRUGHILQLQJD VXPPDU\PHDVXUHRIWKHH[WHQWRIIORFNLQJWRJHWKHU6WDQGDUGL]HGRQWKH

[ ]

^- LQWHUYDOWKH IORFNLQJWRJHWKHUPHDVXUHFDQEHREWDLQHGE\GLYLGLQJWKHGLIIHUHQFHEHWZHHQWKHREVHUYHGDQGWKH UDQGRPO\IRUPHG*LQLFRHIILFLHQWE\WKHGLIIHUHQFHEHWZHHQWKHREVHUYHG*LQLFRHIILFLHQWDQGWKH*LQL FRHIILFLHQWVRIWKHK\SRWKHWLFDOH[WUHPHGLVWULEXWLRQVZKHUHWKHDFWXDOODERULQFRPHVDUHPDWFKHGLQ RUGHUWRJLYHWKHPRVWGLVHTXDOL]LQJDQGPRVWHTXDOL]LQJFRPELQDWLRQRIPDOHDQGIHPDOHODERU LQFRPHV:HZLOOQRZILUVWFRQVLGHUWKHVHWZRH[WUHPHGLVWULEXWLRQVDQGWKHQLQWURGXFHWKHIRUPDO GHILQLWLRQRIWKHLQGH[RIIORFNLQJWRJHWKHU,QWKHIROORZLQJZHDVVXPHWKDWWKHPDUJLQDO GLVWULEXWLRQVRIPDOHDQGIHPDOHODERULQFRPHVDUHJLYHQ

(23)

&RQVLGHUQRZWKHK\SRWKHWLFDOGLVWULEXWLRQRIVSRXVHVODERULQFRPHVZKHUHWKHDFWXDOODERULQFRPHV DUHK\SRWKHWLFDOO\UHDUUDQJHGLQRUGHUWRPDWFKWKHZRPDQZLWKWKHKLJKHVWODERULQFRPHZLWKWKHPDQ ZLWKWKHKLJKHVWODERULQFRPHDQGVRRQGRZQWKHLQFRPHUDQNLQJ7KLVK\SRWKHWLFDOGLVWULEXWLRQ UHSUHVHQWVWKHPRVWGLVHTXDOL]LQJPDWFKLQJRILQGLYLGXDOODERULQFRPHVWKHH[WUHPHFDVHRIIORFNLQJ WRJHWKHU7KH*LQLFRHIILFLHQWRIWKLVGLVWULEXWLRQLVGHQRWHG*PD[LQRUGHUWRLQGLFDWHWKHPRVW GLVHTXDOL]LQJPDWFKLQJSDWWHUQ

,IWKHZRPDQZLWKWKHKLJKHVWODERULQFRPHKDGEHHQPDUULHGWRWKHPDQZLWKWKHKLJKHVWODERU LQFRPHDQGVRRQWKHUDQNLQJRIZRPHQVODERULQFRPHLQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPH ZRXOGKDYHFRLQFLGHGZLWKWKHUDQNLQJLQWKHPDUJLQDOGLVWULEXWLRQRIZRPHQVODERULQFRPH,QWKLV FDVHWKHORFDWLRQFRPSRQHQWZRXOGKDYHEHHQRQHIRUERWKPHQDQGZRPHQDQGWKHFRQFHQWUDWLRQ FRHIILFLHQWVZRXOGKDYHEHHQHTXDOWRWKHPDUJLQDOLQHTXDOLWLHVg=*DQGg =*+HQFHZHFDQ XVHWKHVXPPDU\VWDWLVWLFVLQ7DEOHWRFRPSXWHWKHSDUDPHWHUVRIWKHK\SRWKHWLFDOGLVWULEXWLRQIRU WKHWZRLQFRPHIDPLOLHV7KHFRQFHQWUDWLRQFRHIILFLHQWLQWKHK\SRWKHWLFDOGLVWULEXWLRQRIODERULQFRPH ZRXOGKDYHEHHQg =*=DQGg =* =LQ+HQFHZHFDQFRPSXWHD

K\SRWKHWLFDO*LQLFRHIILFLHQW*PD[LQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPHIRUK\SRWKHWLFDOO\

PDWFKHGFRXSOHVIURPREVHUYHGLQFRPHVKDUHVDQGK\SRWKHWLFDOFRQFHQWUDWLRQFRHIILFLHQWVFRLQFLGLQJ ZLWKWKHPDUJLQDOLQHTXDOLWLHV

*_PD[= m*+m* = ¼ + ¼ =

m m

7KH*LQLFRHIILFLHQW*PD[LQWKHK\SRWKHWLFDOLQFRPHGLVWULEXWLRQFRUUHVSRQGLQJWRWKHPRVW

GLVHTXDOL]LQJPDWFKLQJRIZRPHQVDQGPHQVODERULQFRPHZRXOGWKXVKDYHEHHQLQ$V VHHQIURP7DEOHWKHDFWXDO*LQLFRHIILFLHQWLQWKHGLVWULEXWLRQRIODERULQFRPHIRUPDUULHGFRXSOHV ZDVLQ0HDVXUHGE\WKH*LQLFRHIILFLHQWLQHTXDOLW\ZRXOGKDYHEHHQDERXWSHUFHQW KLJKHULIWKHREVHUYHGGLVWULEXWLRQRIIDPLO\ODERULQFRPHKDGEHHQUHSODFHGE\WKHPRVWGLVHTXDOL]LQJ PDWFKLQJSDWWHUQ

$VGHPRQVWUDWHGE\$DEHUJHWKLVIDLUO\VXEVWDQWLDOLQFUHDVHLQLQHTXDOLW\FRUUHVSRQGVWR LQWURGXFLQJDOXPSVXPWD[RISHUFHQWRIPHDQODERULQFRPHLQDQGUHGLVWULEXWLQJWKHWD[

UHYHQXHDVSURSRUWLRQDOWUDQVIHUVZKHUHHDFKXQLWUHFHLYHVSHUFHQWRILWVSUHUHIRUPODERULQFRPH 7KHOXPSVXPWD[UHYHQXHLVSHUFHQWRI12.IURP7DEOH$RUDERXW12.,Q WKLVK\SRWKHWLFDOSROLF\H[SHULPHQWZHILQGIURP7DEOHWKDWWKHSHUFHQWSRRUHVWFRXSOHVZRXOG ORVHDERXW12.ZKLOHWKHSHUFHQWULFKHVWFRXSOHVZRXOGJDLQDERXW12.

(24)

&RQVLGHUQRZWKHRWKHUH[WUHPHUHIHUHQFHGLVWULEXWLRQLHWKHPRVWHTXDOL]LQJUHDUUDQJLQJRI

LQGLYLGXDOODERULQFRPHV,QWKLVGLVWULEXWLRQWKHKLJKHVWPDOHODERULQFRPHLVPDWFKHGZLWKWKHORZHVW IHPDOHODERULQFRPHDQGVRRQ:HDVVXPHWKDWWKHKLJKHVWPDOHODERULQFRPHDQGWKHORZHVWIHPDOH ODERULQFRPHUHSUHVHQWWKHKLJKHVWIDPLO\ODERULQFRPH7KH*LQLFRHIILFLHQWRIWKLVGLVWULEXWLRQLV GHQRWHG*PLQLQRUGHUWRLQGLFDWHWKHPRVWHTXDOL]LQJPDWFKLQJSDWWHUQ7KHODUJHVWHTXDOL]LQJHIIHFWRI WKLVUHDUUDQJHPHQWRFFXUVLIWKHUDQNLQJRIPHQ¶VODERULQFRPHLQWKHGLVWULEXWLRQRIIDPLO\ODERU LQFRPHZRXOGKDYHFRLQFLGHGZLWKWKHUDQNLQJLQWKHPDUJLQDOGLVWULEXWLRQRIPHQVODERULQFRPHVR WKDWg =*DQGWKDWWKHUDQNLQJRIZRPHQVODERULQFRPHLQWKHGLVWULEXWLRQRIIDPLO\ODERULQFRPH ZRXOGKDYHEHHQWKHUHYHUVHRIWKHUDQNLQJLQWKHPDUJLQDOGLVWULEXWLRQRIZRPHQVODERULQFRPHVR WKDWWKHK\SRWKHWLFDOFRQFHQWUDWLRQFRHIILFLHQWLVg=-*:HWKXVJHWIRUWKHWZRLQFRPHIDPLOLHVLQ

*_PLQ = ¼ - ¼ =

ZKLFKLVFRQVLGHUDEO\ORZHUWKDQWKHREVHUYHG*LQLFRHIILFLHQWRI+HQFHLQWKLVFDVHWKH*LQL FRHIILFLHQWZRXOGKDYHEHHQSHUFHQWOHVVLIWKHREVHUYHGGLVWULEXWLRQRIIDPLO\ODERULQFRPHKDG EHHQUHSODFHGE\WKHPRVWHTXDOL]LQJPDWFKLQJSDWWHUQ7KLVFRUUHVSRQGVWRDSROLF\H[SHULPHQWZKHUH DOXPSVXPWUDQVIHURISHUFHQWRIPHDQODERULQFRPHRUDERXW12.LQLVILQDQFHG E\SURSRUWLRQDOWD[SD\PHQWV,QWKLVFDVHWKHSHUFHQWSRRUHVWFRXSOHVZRXOGJDLQDERXW12.

ZKHUHDVWKHSHUFHQWULFKHVWFRXSOHVZRXOGORVHDERXW12.

7KHPRVWHTXDOL]LQJPDWFKLQJSDWWHUQZRXOGKDYHJLYHQDVXEVWDQWLDOO\ODUJHUUHGXFWLRQLQLQHTXDOLW\

DVFRPSDUHGWRWKHLQFUHDVHLQLQHTXDOLW\IROORZLQJIURPWKHPRVWGLVHTXDOL]LQJPDWFKLQJSDWWHUQ7KLV ODUJHUHGXFWLRQLQLQHTXDOLW\LQGLFDWHVDFRQVLGHUDEOHGHYLDWLRQEHWZHHQWKHPRVWHTXDOL]LQJSDWWHUQ DQGWKHREVHUYHGGLVWULEXWLRQRIIDPLO\ODERULQFRPHZKLFKLQLWVHOILQGLFDWHVDODUJHH[WHQWRI IORFNLQJWRJHWKHULQWKHREVHUYHGGLVWULEXWLRQRIODERULQFRPH+RZHYHUDVGLVFXVVHGDERYHZH VXJJHVWWKDWWKHH[WHQWRIIORFNLQJWRJHWKHUVKRXOGEHPHDVXUHGLQWHUPVRIWKHDVVRFLDWLRQEHWZHHQ WKHODERULQFRPHRIWKHVSRXVHV6SHFLILFDOO\ZHSURSRVHDQLQGH[IRUWKHH[WHQWRIIORFNLQJ

WRJHWKHUEDVHGRQWKHGHYLDWLRQEHWZHHQWKH*LQLFRHIILFLHQWRIWKHUDQGRPO\PDWFKHGODERULQFRPHV DQGWKH*LQLFRHIILFLHQWRIWKHREVHUYHGIDPLO\ODERULQFRPHV

7KH*LQLFRHIILFLHQWRIWKHK\SRWKHWLFDOGLVWULEXWLRQRIODERULQFRPHZKHUHWKHODERULQFRPHVRI PDUULHGPHQDQGPDUULHGZRPHQDUHPDWFKHGUDQGRPO\LVGHQRWHG*U,WDSSHDUVQDWXUDOWROLPLWWKH UDQJHRIYDULDWLRQRIWKHLQGH[DQGZHWKXVQRUPDOL]HE\WKHGLVWDQFHEHWZHHQ*UDQGWKH*LQL FRHIILFLHQW*PD[LQWKHPRVWGLVHTXDOL]LQJPDWFKLQJRIPDOHDQGIHPDOHODERULQFRPHVLI* *> UDQG E\WKHGLVWDQFHEHWZHHQ*UDQGWKH*LQLFRHIILFLHQW*PLQLQWKHPRVWHTXDOL]LQJPDWFKLQJRIPDOHDQG IHPDOHODERULQFRPHVLI* *< U7KHIRUPDOGHILQLWLRQLVJLYHQE\

(25)

^PD[

PLQ

LI

Ñ -

Ô -

= ÒÔ

Ô <

Ô -

Ó

U U

U

U U

U

* * * ! *

* *

* * * * *

* * n

7KHLQGH[nKDVUDQJH

[ ]

^- ^ZKHUHⁿ ⁼GHVFULEHVWKHVLWXDWLRQZKHUHWKHODERULQFRPHVRIWKH VSRXVHVDUHVWRFKDVWLFDOO\LQGHSHQGHQW$VSHFLDOFDVHRIn =RFFXUVLIWKHODERULQFRPHVRIDOO PDUULHGZRPHQDUHHTXDOVRWKDWg =7KHFDVHRIn >UHIOHFWVWKDW* *> _ULHLQHTXDOLW\LQWKH REVHUYHGGLVWULEXWLRQRIODERULQFRPHVLVODUJHUWKDQWKHUDQGRPO\PDWFKHGGLVWULEXWLRQRIODERU LQFRPHVZKLFKLVWDNHQDVDQLQGLFDWRURIIORFNLQJWRJHWKHU7KHFDVHRIn <UHIOHFWVWKDW* *< U LHLQHTXDOLW\LQWKHREVHUYHGGLVWULEXWLRQRIODERULQFRPHVLVOHVVWKDQLQHTXDOLW\LQWKHUDQGRPO\

PDWFKHGGLVWULEXWLRQRIODERULQFRPHVZKLFKFKDUDFWHUL]HVWKHRSSRVLWHVLWXDWLRQRIIORFNLQJ

WRJHWKHU+HQFHnLVV\PPHWULFZLWKUHVSHFWWRWKHVLJQRIWKHDVVRFLDWLRQEHWZHHQWKHODERULQFRPHV RIWKHKXVEDQGDQGWKHZLIH

7KHGHILQLWLRQRI n * VXJJHVWVWKDW n * DOVRFDQEHLQWHUSUHWHGDVDPHDVXUHRIDVVRFLDWLRQRU FRUUHODWLRQEHWZHHQWZRVWRFKDVWLFYDULDEOHV7KLVLQWHUSUHWDWLRQHPHUJHVHYHQPRUHFOHDUO\ZKHQWKH PHDVXUHRIWKHH[WHQWRIIORFNLQJWRJHWKHULVGHULYHGIURPWKHVTXDUHGFRHIILFLHQWRIYDULDWLRQUDWKHU WKDQIURPWKH*LQLFRHIILFLHQW7KXVOHW;DQG;GHQRWHWKHLQFRPHYDULDEOHVRIWKHIHPDOHDQGWKH PDOHrWKHFRUUHODWLRQFRHIILFLHQW&WKHVTXDUHGFRHIILFLHQWRIYDULDWLRQDQGOHW&U&PD[&PLQDQG

*

n KDYHVLPLODUPHDQLQJDV*U*PD[*PLQDQG n * %\QRWLQJWKDW^YDU

(

^;⁺^;

)

LVDWWDLQLQJLWV PD[LPXPDQGPLQLPXPYDOXHVZKHQrLVHTXDOWRDQG - UHVSHFWLYHO\ZHJHWWKHIROORZLQJUHVXOWV

( ) ( )

( )

PD[ PD[

YDU YDU

YDU YDU FRY YDU YDU

YDU YDU YDU YDU YDU YDU FRY

YDU YDU LI

+ - +

= - =

- + - +

+ + - -

= + + ¼ - -

= = >

¼

U U

U

; ; ; ;

& &

&

& & ; ; ; ;

; ; ; ; ; ;

; ; ; ; ; ;

; ; & &

; ;

n

r DQG

( )

PLQ

FRY

YDU YDU YDU YDU YDU YDU FRY

LI

YDU YDU

= - =

- + - - + ¼

= = <

¼

U U

U

& & ; ;

&

& & ; ; ; ; ; ;

; ; & &

; ;

n

r

(26)

(TXDWLRQVDQGGHPRQVWUDWHWKDWWKHFRUUHODWLRQFRHIILFLHQWPD\EHXVHGDVDVXPPDU\

PHDVXUHRIWKHH[WHQWRIIORFNLQJWRJHWKHUZKHQLQFRPHLQHTXDOLW\LVMXGJHGRQWKHEDVLVRIWKH FRHIILFLHQWRIYDULDWLRQ+RZHYHUWKLVUHVXOWDOVRVXJJHVWVWKDWWKH*LQLEDVHGPHDVXUHRIWKHH[WHQW RIIORFNLQJWRJHWKHU

(

ⁿ ^*

)

FDQEHHPSOR\HGDVDQDOWHUQDWLYHWRWKHFRUUHODWLRQFRHIILFLHQWDVD PHDVXUHRIWKHFRUUHODWLRQEHWZHHQWZRVWRFKDVWLFYDULDEOHV

)LJXUH7KHH[WHQWRIIORFNLQJWRJHWKHUPHDVXUHGE\WKHLQGH[ n *

5HWXUQLQJWR n * EDVHGRQWKH*LQLFRHIILFLHQW)LJXUHVKRZVWKHGHYHORSPHQWRI n * IURP WR$WWKLVSRLQWZHKDYHGDWDIRUWKHUDQGRPO\PDWFKHGODERULQFRPHVRQO\DIWHU )LJXUHVKRZVWKDWIRUFRXSOHVZLWKWZRODERULQFRPHVWKHLQGH[nKDVEHHQDERYH]HURWKURXJKRXW WKHSHULRG7KHORZHVWLPDWHIRUnLQWKHVVXJJHVWVDUDWKHUZHDNWHQGHQF\RIIORFNLQJWRJHWKHU ZKLOHWKHUHKDVEHHQDPRUHFOHDUWHQGHQF\RIIORFNLQJWRJHWKHUGXULQJWKHV$VZRPHQDQG PHQKDYHREWDLQHGPRUHHTXDORSSRUWXQLWLHVZLWKUHVSHFWWRHGXFDWLRQODERUVXSSO\DQGLQFRPHWKH SRWHQWLDOIRUIORFNLQJWRJHWKHUKDVLQFUHDVHGDVUHIOHFWHGE\WKHSRVLWLYHWUHQGRIn1RWHKRZHYHU WKDWWKHFXUUHQWH[WHQWRIIORFNLQJWRJHWKHULVIDUEHORZWKHH[WUHPHFDVHRIIORFNLQJWRJHWKHU ZKHUH* *= PD[DQGn=

)RUFRXSOHVZLWKDWOHDVWRQHODERULQFRPHnKDVEHHQVRPHZKDWORZHUWKDQIRUWKHWZRLQFRPH FRXSOHV7KLVJURXSFRQWDLQVWKHRQHLQFRPHFRXSOHVWKDWFRXQWHUDFWWKHWHQGHQF\RIIORFNLQJ

WRJHWKHUIRUWKHWZRLQFRPHIDPLOLHV,QIDFWLQWKHQHJDWLYHYDOXHRInLQGLFDWHGQRWHQGHQF\RI IORFNLQJWRJHWKHU)RUFRXSOHVZLWKRQO\RQHODERULQFRPHZHKDYHFRQFOXGHGWKDWWKHQHJDWLYH FRQFHQWUDWLRQFRHIILFLHQWVVXJJHVWWKDWWKHUHLVQRWHQGHQF\RIIORFNLQJWRJHWKHU2QWKHFRQWUDU\LW DSSHDUVWKDWZRPHQVODERULQFRPHWRDFHUWDLQH[WHQWLVPHDQWWRFRPSHQVDWHIRUORZVSRXVHLQFRPHV

%RWKVSRXVHVKDYH ODERULQFRPH

$WOHDVWRQHVSRXVHKDV ODERULQFRPH

(27)

$VLQWKHSUHFHGLQJGLVFXVVLRQZHPLJKWDVNKRZPXFKLQHTXDOLW\LQIDPLO\ODERULQFRPHZRXOGKDYH GHFUHDVHGRIWKHUHKDGEHHQQRWHQGHQF\RIIORFNLQJWRJHWKHU,QWKH*LQLFRHIILFLHQWLQWKH GLVWULEXWLRQRIUDQGRPO\PDWFKHGIDPLO\ODERULQFRPHZDVLHSHUFHQWORZHUWKDWWKHDFWXDO

*LQLFRHIILFLHQWRI7KLVUHGXFWLRQLQWKH*LQLFRHIILFLHQWFRUUHVSRQGVWRDSROLF\H[SHULPHQW ZKHUHDOXPSVXPWUDQVIHURISHUFHQWRIPHDQODERULQFRPHRUDERXW12.LVILQDQFHGE\

SURSRUWLRQDOWD[SD\PHQWVZKHUHHDFKXQLWSD\VSHUFHQWRILWVSUHUHIRUPODERULQFRPH,QWKLVFDVH WKHSHUFHQWSRRUHVWFRXSOHVZRXOGJDLQDERXW12.ZKHUHDVWKHSHUFHQWULFKHVWFRXSOHV ZRXOGORVHDERXW12.

&RQFOXVLRQ

7KHDQDO\VLVRIWKLVSDSHUVKRZVDFRQVLGHUDEOHGLIIHUHQFHEHWZHHQFRXSOHVZLWKRQHDQGWZRODERU LQFRPHVLQKRZZRPHQVODERULQFRPHLQIOXHQFHVWKHLQHTXDOLW\LQIDPLO\ODERULQFRPH)LUVWZHKDYH GHFRPSRVHGWKH*LQLFRHIILFLHQWVLQRUGHUWRFRPSDUHWKHFRQWULEXWLRQIURPZRPHQVODERULQFRPHWR LQHTXDOLW\LQIDPLO\ODERULQFRPHIRUWKHGLIIHUHQWJURXSV6HFRQGO\ZHKDYHDQDO\]HGZKHWKHUWKHUH LVDWHQGHQF\WKDWELUGVRIDIHDWKHUIORFNWRJHWKHULHWKDWZRPHQZLWKKLJKODERULQFRPHV

JHQHUDOO\DUHPDUULHGWRPHQZLWKKLJKODERULQFRPHVDQGYLFHYHUVD

7KHGHFRPSRVLWLRQRIWKH*LQLFRHIILFLHQWVKRZVWKDWIRUDOOPDUULHGFRXSOHVDQGIRUWZRLQFRPH IDPLOLHVZRPHQVODERULQFRPHJLYHVDGLVHTXDOL]LQJFRQWULEXWLRQWRLQHTXDOLW\LQIDPLO\ODERU LQFRPH)RURQHLQFRPHIDPLOLHVZHILQGWKHRSSRVLWHUHVXOWZRPHQVODERULQFRPHJLYHVDQ

HTXDOL]LQJFRQWULEXWLRQWRLQHTXDOLW\LQIDPLO\ODERULQFRPH&RPSDULQJWKHFRQFHQWUDWLRQFRHIILFLHQWV IRUODERULQFRPHRYHUWLPHZHILQGWKDWWKHGLVHTXDOL]LQJFRQWULEXWLRQIURPZRPHQVODERULQFRPHKDV GHFUHDVHGIURPWR

7KHODUJHGLIIHUHQFHEHWZHHQIDPLOLHVZLWKRQHDQGWZRODERULQFRPHVUHIOHFWVWKHLUODERUPDUNHW FKRLFHV:KLOHWKHWZRLQFRPHIDPLOLHVDUHKRPRJHQRXVZLWKUHVSHFWWRWKHLUDFWLYHO\FKRVHQODERU VXSSO\WKHRQHLQFRPHIDPLOLHVDUHPXFKPRUHKHWHURJHQHRXV6RPHRIWKHVHKDYHRQO\RQHODERU LQFRPHE\FKRLFHHJLIWKH\SUHIHUWRGHYRWHPRUHWLPHWRFKLOGFDUHDQGOHVVWLPHWRSDLGODERU ZKHUHDVRWKHUVKDYHRQO\RQHODERULQFRPHDVDFRQVHTXHQFHRIDJHKHDOWKRURWKHUIDFWRUVEH\RQGWKH FKRLFHRIWKHLQGLYLGXDO

,QRUGHUWRDQDO\]HZKHWKHUELUGVRIDIHDWKHUIORFNWRJHWKHURUQRWZHKDYHFRQVLGHUHGWKH

K\SRWKHWLFDOUHIHUHQFHGLVWULEXWLRQZKHUHWKHPDOHDQGIHPDOHODERULQFRPHVDUHUDQGRPO\PDWFKHGDV ZHOODVWZRH[WUHPHGLVWULEXWLRQVZKHUHREVHUYHGODERULQFRPHVDUHK\SRWKHWLFDOO\UHDUUDQJHGLQWKH PRVWGLVHTXDOL]LQJPDWFKLQJSDWWHUQVDQGWKHPRVWHTXDOL]LQJPDWFKLQJSDWWHUQ)URPWKHREVHUYHG

*LQLFRHIILFLHQW*DQGWKH*LQLFRHIILFLHQWV*U*PD[DQG*PLQRIWKHVHK\SRWKHWLFDOGLVWULEXWLRQVZH

(28)

GHULYHDQLQGH[nWKDWPHDVXUHVWKHH[WHQWRIIORFNLQJWRJHWKHU)RUFRXSOHVZLWKWZRODERULQFRPHV WKHUHKDVEHHQDSDWWHUQRIIORFNLQJWRJHWKHU/RZHVWLPDWHVIRUnLQWKHVVXJJHVWDUDWKHUZHDN WHQGHQF\RIIORFNLQJWRJHWKHUZKLOHWKHUHKDVEHHQDPRUHFOHDUWHQGHQF\RIIORFNLQJWRJHWKHULQ WKHV$VZRPHQDQGPHQKDYHREWDLQHGPRUHHTXDORSSRUWXQLWLHVZLWKUHVSHFWWRHGXFDWLRQ ODERUVXSSO\DQGLQFRPHWKHSRWHQWLDOIRUIORFNLQJWRJHWKHUKDVLQFUHDVHGDVUHIOHFWHGE\WKH SRVLWLYHWUHQGRIn)RURQHLQFRPHIDPLOLHVWKHQHJDWLYHFRQFHQWUDWLRQFRHIILFLHQWVVXJJHVWWKDWWKHUH LVQRWHQGHQF\RIIORFNLQJWRJHWKHU2QWKHFRQWUDU\LWDSSHDUVWKDWZRPHQVODERULQFRPHWRVRPH H[WHQWFRXQWHUDFWVWKHLQHTXDOLW\LQPHQVODERULQFRPH7KLVVWULNLQJGLIIHUHQFHLOOXVWUDWHVWKH LPSRUWDQFHRIGLVWLQJXLVKEHWZHHQRQHLQFRPHDQGWZRLQFRPHIDPLOLHVLQDQDO\VLVRIIDPLO\LQFRPH LQHTXDOLW\

(29)

5HIHUHQFHV

$DEHUJH5-.'DJVYLNDQG66WU¡P/DERU6XSSO\5HVSRQVHVDQG:HOIDUH(IIHFWVRQ7D[

5HIRUPV6FDQGLQDYLDQ-RXUQDORI(FRQRPLFV

$DEHUJH5,QWHUSUHWDWLRQVRIFKDQJHVLQUDQNGHSHQGHQWPHDVXUHVRILQHTXDOLW\(FRQRPLF /HWWHUV

$DEHUJH5*LQLV1XFOHDU)DPLO\:RUNLQJ3DSHU,&(57RULQR

$VODNVHQ,DQG&.RUHQ8QSDLG+RXVHKROG:RUNDQGWKH'LVWULEXWLRQRI([WHQGHG,QFRPH 7KH1RUZHJLDQ([SHULHQFH)HPLQLVW(FRQRPLFV

%HWVRQ'DQG-YDQGHU*DDJ:RUNLQJ0DUULHG:RPHQDQGWKH'LVWULEXWLRQRI,QFRPH -RXUQDORI+XPDQ5HVRXUFHV

%M|UNOXQG$5LVLQJ)HPDOH/DERXU)RUFH3DUWLFLSDWLRQDQGWKH'LVWULEXWLRQRI)DPLO\

,QFRPHWKH6ZHGLVK([SHULPHQW$FWD6RFLRORJLFD

%RQIHUURQL&(OHPHQWLGLVWDWLVWLFDJHQHUDOH6HHEHU)LUHQ]H

%RXOLHU%/DQG055RVHQ]ZHLJ6FKRROLQJ6HDUFKDQG6SRXVH6HOHFWLRQ7HVWLQJ (FRQRPLF7KHRULHVRI0DUULDJHDQG+RXVHKROG%HKDYLRU-RXUQDORI3ROLWLFDO(FRQRP\

%U\DQW:.DQG&'=LFN,QFRPH'LVWULEXWLRQ,PSOLFDWLRQVRI5XUDO+RXVHKROG3URGXFWLRQ

$PHULFDQ-RXUQDORI$JULFXOWXUDO(FRQRPLFV

&DQFLDQ0DQG'5HHG$VVHVVLQJWKH(IIHFWVRI:LYHV(DUQLQJVRQ)DPLO\,QFRPH ,QHTXDOLW\5HYLHZRI(FRQRPLFVDQG6WDWLVWLFV

'DQ]LJHU6'R:RUNLQJ:LYHV,QFUHDVH)DPLO\,QFRPH,QHTXDOLW\"-RXUQDORI+XPDQ 5HVRXUFHV

'LFNHQV:DQG6/XQGEHUJ+RXUV5HVWULFWLRQVDQG/DERU6XSSO\,QWHUQDWLRQDO(FRQRPLF 5HYLHZ

(OOLQJV WHU$/DQG05¡QVHQ7KH'XDO6WUDWHJ\0RWKHUKRRGDQGWKH:RUN&RQWUDFWLQ 6FDQGLQDYLD(XURSHDQ-RXUQDORI3RSXODWLRQ

+RUYDWK)::RUNLQJ:LYHV5HGXFH,QHTXDOLW\LQ'LVWULEXWLRQRI)DPLO\(DUQLQJV0RQWKO\

/DERXU5HYLHZ

/DP'0DUULDJH0DUNHWVDQG$VVRUWDWLYH0DWLQJZLWK+RXVHKROG3XEOLF*RRGV7KHRUHWLFDO 5HVXOWVDQG(PSLULFDO,PSOLFDWLRQV-RXUQDORI+XPDQ5HVRXUFHV

/HUPDQ5,DQG6<LW]DNL,QFRPH,QHTXDOLW\(IIHFWVE\,QFRPH6RXUFH$1HZ$SSURDFK DQG$SSOLFDWLRQVWRWKH8QLWHG6WDWHV5HYLHZRI(FRQRPLFVDQG6WDWLVWLFV

/XQGEHUJ6/DERU6XSSO\RI+XVEDQGVDQG:LYHV$6LPXOWDQHRXV(TXDWLRQV$SSURDFK 5HYLHZRI(FRQRPLFVDQG6WDWLVWLFV

3HQFDYHO-$VVRUWDWLYH0DWLQJE\6FKRROLQJDQGWKH:RUN%HKDYLRURI:LYHVDQG+XVEDQGV

$PHULFDQ(FRQRPLF5HYLHZ

(30)

5DR907ZR'HFRPSRVLWLRQVRI&RQFHQWUDWLRQ5DWLR-RXUQDORIWKH5R\DO6WDWLVWLFDO 6RFLHW\

5RVHQ]ZHLJ05:HOIDUH0DULWDO3URVSHFWVDQG1RQPDULWDO&KLOGEHDULQJ-RXUQDORI 3ROLWLFDO(FRQRP\66

6PLWK-37KH'LVWULEXWLRQRI)DPLO\(DUQLQJV-RXUQDORI3ROLWLFDO(FRQRP\66

(31)

$SSHQGL[$

7DEOH$$QQXDOPHDQODERULQFRPHIRUPDUULHGFRXSOHVDQGVSRXVHVE\ODERUPDUNHWVWDWXV DQG12.6WDQGDUGGHYLDWLRQVDUHJLYHQLQ QH[WFROXPQ

<HDU 8QLW $WOHDVWRQHVSRXVHKDV

ODERULQFRPH 2QO\RQHVSRXVHKDV

ODERULQFRPH %RWKVSRXVHVKDYHODERU LQFRPH

0DUULHGPHQ

0DUULHGZRPHQ 0DUULHGFRXSOHV

0DUULHGPHQ

(32)

7DEOH$$QQXDOPHDQODERULQFRPHIRUPDUULHGFRXSOHVDQGPDUULHGFRXSOHVZLWKFKLOGUHQE\

ODERUPDUNHWVWDWXVDQG12.6WDQGDUG GHYLDWLRQVDUHJLYHQLQQH[WFROXPQ

ODERULQFRPH 2QO\RQHVSRXVHKDV

ODERULQFRPH %RWKVSRXVHVKDYH ODERULQFRPH 0DUULHGFRXSOHV

0DUULHGFRXSOHV

ZLWKFKLOGUHQ

0DUULHGFRXSOHV 0DUULHGFRXSOHV ZLWKFKLOGUHQ 0DUULHGFRXSOHV

0DUULHGFRXSOHV ZLWKFKLOGUHQ 0DUULHGFRXSOHV

0DUULHGFRXSOHV ZLWKFKLOGUHQ

(33)

$SSHQGL[%

7DEOH%7KH*LQLFRHIILFLHQWLQGLVWULEXWLRQVRIODERULQFRPHIRUPDUULHGPHQPDUULHGZRPHQ DQGPDUULHGFRXSOHVE\ODERUPDUNHWVWDWXVDQG 6WDQGDUGGHYLDWLRQVDUHJLYHQLQSDUHQWKHVHV

ODERULQFRPH 2QO\RQHVSRXVHKDVODERU

LQFRPH %RWKVSRXVHVKDYHODERU LQFRPH 0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

0DUULHGPHQ

0DUULHGZRPHQ

0DUULHGFRXSOHV

(34)

7DEOH%7KH*LQLFRHIILFLHQWLQGLVWULEXWLRQRIODERULQFRPHIRUPDUULHGFRXSOHVDQGPDUULHG FRXSOHVZLWKFKLOGUHQE\ODERUPDUNHWVWDWXVDQG 6WDQGDUGGHYLDWLRQVDUHJLYHQLQSDUHQWKHVHV

<HDU 8QLW $WOHDVWRQHVSRXVH

KDVODERULQFRPH 2QO\RQHVSRXVH

KDVODERULQFRPH %RWKVSRXVHVKDYH ODERULQFRPH

0DUULHGFRXSOHV

0DUULHGFRXSOHVZLWKFKLOGUHQ

0DUULHGFRXSOHV