nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2009‒02‒07
four papers chosen by
Maximo Rossi
University of the Republic

  1. Culture, Context, and the Taste for Redistribution By Luttmer, Erzo F. P.; Singhal, Monica
  2. Government Transfers and Political Support By Marco Manacorda; Edward Miguel; Andrea Vigorito
  3. Switching Regression Estimates of EIS for Stockholders and Non-Stockholders By Sheng Guo
  4. Tax Progressivity and Recent Evolution of the Finnish Income Inequality By Marja Riihelä; Risto Sullström; Suoniemi; Ilpo

  1. By: Luttmer, Erzo F. P. (Harvard U); Singhal, Monica (Harvard U)
    Abstract: Is culture an important determinant of preferences for redistribution? To separate the effect of culture from the effect of the economic and institutional environment ("context"), we relate immigrants' preferences for redistribution to the average preference in their birth countries, controlling extensively for individual characteristics and country-of-residence fixed effects. We find a strong positive relationship. This cultural effect is larger for non-voters, those with shorter tenure in the country of residence, and those who move to countries with a large number of immigrants from their own birth countries. Immigrants from countries with a higher preference for redistribution are also more likely to vote for a more proredistribution political party. The effect of culture persists strongly into the second generation.
    JEL: D72 H23 Z10
    Date: 2008–08
  2. By: Marco Manacorda; Edward Miguel; Andrea Vigorito
    Abstract: We estimate the impact of a large anti-poverty program -- the Uruguayan PANES -- on political support for the government that implemented it. The program mainly consisted of a monthly cash transfer for a period of roughly two and half years. Using the discontinuity in program assignment based on a pre-treatment score, we find that beneficiary households are 21 to 28 percentage points more likely to favor the current government (relative to the previous government). Impacts on political support are larger among poorer households and for those near the center of the political spectrum, consistent with the probabilistic voting model in political economy. Effects persist after the cash transfer program ends. We estimate that the annual cost of increasing government political support by 1 percentage point is roughly 0.9% of annual government social expenditures.
    JEL: D72 H53 O12 O23
    Date: 2009–02
  3. By: Sheng Guo (Department of Economics, Florida International University)
    Abstract: This paper analyzes a panel data set of Panel Study of Income Dynamics (PSID) households and demonstrates that the estimate of EIS (Elasticity of Intertemporal Substitution) for stockholders and non-stockholders is large and dierent between them, based upon the consumption-based capital asset pricing model (CAPM). However, recognizing possible laxities in defining and measuring stockholding status, and hence allowing for possible misclassification error therein, I use the switching regression framework to show the evidence that there is a significant portion of stockholders misclassified as non-stockholders. The correction for this misclassification error results in closer gap of EIS between these two groups. Estimates after the correction are in line with those found in repeated cross-section Consumer Expenditure Survey (CEX) samples, whereas estimates without the correction are not. This illustrates the importance of accounting for misclassification error in such contexts. To some extent this result along with others of this research validates the use of repeated cross-section data in quatitative estimation of CAPM.
    Date: 2009–02
  4. By: Marja Riihelä; Risto Sullström; Suoniemi; Ilpo
    Abstract: After the Economic Crisis in early 1990s the Finnish economy has recovered rapidly, and simultaneously a major period of equalization from the mid 1970s to the mid 1990s has been reversed, taking the levels of the Gini coefficient in a few years back to levels of inequality found 30 years ago. The paper examines how changes in Government policy, and in particular, in the incentives introduced by tax reforms have influenced income inequality. The paper introduces a decomposition of the Gini and concentration coefficients by population groups which are calculated for before- and after-tax incomes to consider evolution of income inequality and tax progressivity in Finland over the period 1990?2004. Decompositions of the Gini coefficient of after-tax income by income sources give little information on the effects of taxation. In contrast, popular measures of tax progressivity (Reynolds and Smolensky 1977) show a significant decrease. Our decomposition of the progressivity measure by income deciles focuses on changes in tax treatment of the income deciles in the ten year period after the mid 1990s. The changes in the decile shares of before-tax and after-tax income among those in the highest before-tax income deciles are the main factors that lie behind the recent change in tax progressivity, and play an important role in explaining the recent surge in inequality. These changes have been accompanied with a change in the composition of factor income. There has been an unprecedented increase in capital income which has mainly accrued to the population groups at the high end of the income distribution after the mid 1990s. The change is most clearly seen among those in the top income percentage. The 1993 Finnish tax reform introducing the Nordic dual income tax model, and creating strong incentives to shift labour income to capital income for those in the highest marginal tax brackets, is among the key policy decisions responsible for this trend. Interestingly enough, but consistent with the income shifting hypothesis, we find no increase in horizontal inequality in response to the introduction of the dual income tax.
    Keywords: Income inequality, Tax progressivity, Decomposition, Gini coefficient
    Date: 2008–12–17

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