nep-ltv New Economics Papers
on Unemployment, Inequality and Poverty
Issue of 2016‒10‒09
eight papers chosen by
Maximo Rossi
Universidad de la República

  1. Fiscal Policy, Inequality and the Poor in the Developing World By Nora Lustig
  2. On the measurement of long-run income inequality. Empirical evidence from Norway, 1875-2013 By Rolf Aaberge; Anthony B Atkinson; Jørgen Modalsli
  3. Inequality Aversion and Marginal Income Taxation By Aronsson, Thomas; Johansson-Stenman, Olof
  4. Earnings among Nine Ethnic Minorities and the Han Majority in China's Cities By Gustafsson, Björn Anders; Yang, Xiuna
  5. Labor Market Imperfections and the Firm's Wage Setting Policy By Félix, Sónia; Portugal, Pedro
  6. The Missing "One-Offs": The Hidden Supply of High-Achieving, Low Income Students By Hoxby, Caroline M.; Avery, Christopher
  7. The Richness of Giving: Charity Selection and Charitable Gifts in a Large Field Experiment By Daniel Lee; John List; Michael Price; Shachar Kariv
  8. Search, Matching and Training By Christopher J. Flinn; Ahu Gemici; Steven Laufer

  1. By: Nora Lustig (Department of Economics, Tulane University)
    Abstract: Using comparable fiscal incidence analysis, this paper examines the impact of fiscal policy on inequality and poverty in twenty-five countries for around 2010. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in four countries using US$1.25/day PPP poverty line, in 8 countries using US$2.50/day line, and 15 countries using the US$4/day line (over and above market income poverty). While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing except for Jordan.
    Keywords: Fiscal Incidence, Social Spending, Inequality, Poverty, Developing Countries.
    JEL: H22 H5 D31 I3
    Date: 2016–10
  2. By: Rolf Aaberge; Anthony B Atkinson; Jørgen Modalsli (Statistics Norway)
    Abstract: In seeking to understand inequality today, a great deal can be learned from history. However, there are few countries for which the long-run development of income inequality has been charted. Many countries have records of incomes, taxes and social support. This paper presents a new methodology constructing income inequality indices from such tabular data. The methodology is applied to Norway, for which rich historical data sources exist covering the period 1875 to 2013. Taking careful account of the definition of income and population and the availability of micro data starting in 1967, an upper and lower bound for the pre-tax income Gini coefficient for core households is produced. Our findings cast doubt on the idea that Norway in the nineteenth century was an egalitarian society, supporting the view of de Tocqueville that the young United States exhibited less inequality than the states of Europe. We show that overall inequality of gross family incomes is lower today than a hundred years ago. At the same time, there has not been a consistent downward trend over time in inequality; rather, the fall in inequality took place in a series of episodes. Comparison to existing data for Denmark and the United States reveals remarkable commonalities, as well as distinct periods of difference. This supports the view that the evolution of income inequality is best studied, not in terms of an over-arching theory, but by studying episodes of rising and falling inequality, and the manifold forces in operation
    Keywords: income; inequality; distribution; Norway; long-run changes
    JEL: D31 D63 N33 N34
    Date: 2016–10
  3. By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics, Umeå University); Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper deals with tax policy responses to inequality aversion by examining the first-best Pareto-efficient marginal tax structure when people are inequality averse. In doing so, we distinguish between four different and widely used models of inequality aversion. The results show that empirically and experimentally quantified degrees of inequality aversion have potentially very strong implications for Pareto-efficient marginal income taxation. It also turns out that the exact type of inequality aversion (self-centered vs. non-self-centered), and the measures of inequality used, matter a great deal. For example, based on simulation results mimicking the disposable income distribution in the US in 2013, the preferences suggested by Fehr and Schmidt (1999) imply monotonically increasing marginal income taxes, with large negative marginal tax rates for low-income individuals and large positive marginal tax rates for high-income individuals. In contrast, the often considered similar model by Bolton and Ockenfels (2000) implies close to zero marginal income tax rates for all.
    Keywords: Pareto-efficient taxation; Inequality aversion; Inequity aversion; Self-centered inequality aversion; Non-self-centered inequality aversion; Fehr and Schmidt preferences; Bolton and Ockenfels preferences
    JEL: D03 D62 H23
    Date: 2016–10
  4. By: Gustafsson, Björn Anders (University of Gothenburg); Yang, Xiuna (China Development Research Foundation)
    Abstract: This paper asks if economic growth and steps towards a market economy have affected earnings gaps between the Han and nine large urban ethnic minorities: Zhuang, Hui, Manchurian, Tujia, Uighur, Miao, Tibetan, Mongol and Korean. It also asks how earnings premiums and earnings penalties have changed for the nine ethnic minorities. For the analysis we use a subsample of the 2005 China's Inter-Census Survey. We find examples of three different changes over time in earnings premiums and earnings penalties: One ethnic minority for whom the development has been more favourable than for the Han majority; a second category in which development has been similar; and a third category for which development has been unfavourable. We conclude from the analysis that it can be misleading to infer the experience of one ethnic minority from that of another.
    Keywords: earnings, ethnic minorities, Uighur, Tibetan, Korean
    JEL: J15 J31 J71 P23
    Date: 2016–09
  5. By: Félix, Sónia (Universidade Nova de Lisboa); Portugal, Pedro (Banco de Portugal)
    Abstract: We use matched employer-employee data and firm balance sheet data to investigate the importance of firm productivity and firm labor market power in explaining firm heterogeneity in wage formation. We use a linear regression model with one interacted high dimensional fixed effect to estimate 5-digit sector-specific elasticity of output with respect to input factors directly from the production function. This allows to derive firm specific price-cost mark-up and elasticity of labor supply. The results show that firms possess a considerable degree of product and labor market power. Furthermore, we find evidence that firm's monopsony power affects negatively the earnings of its workers and firm's total factor productivity is considerably associated with higher earnings, ceteris paribus. We also find that firms use monopsony power for wage differentiation between male and female workers.
    Keywords: monopsony, wage setting, labor market frictions
    JEL: J31 J20 J42
    Date: 2016–09
  6. By: Hoxby, Caroline M. (Stanford University); Avery, Christopher (Harvard University)
    Abstract: We show that the vast majority of low-income high achievers do not apply to any selective college. This is despite the fact that selective institutions typically cost them less, owing to generous financial aid, than the two-year and nonselective four-year institutions to which they actually apply. Moreover, low-income high achievers have no reason to believe they will fail at selective institutions since those who do apply are admitted and graduate at high rates. We demonstrate that low-income high achievers' application behavior differs greatly from that of their high-income counterparts with similar achievement. The latter generally follow experts' advice to apply to several "peer," a few "reach," and a couple of "safety" colleges. We separate low-income high achievers into those whose application behavior is similar to that of their high-income counterparts ("achievement-typical") and those who apply to no selective institutions ("income-typical"). We show that income-typical students are not more disadvantaged than the achievementtypical students. However, in contrast to the achievement-typical students, income-typical students come from districts too small to support selective public high schools, are not in a critical mass of fellow high achievers, and are unlikely to encounter a teacher who attended a selective college. We demonstrate that widely used policies--college admissions recruiting, campus visits, college mentoring programs--are likely to be ineffective with income-typical students. We suggest that effective policies must depend less on geographic concentration of high achievers.
    Date: 2015
  7. By: Daniel Lee; John List; Michael Price; Shachar Kariv
    Abstract: We build on previous work in the charitable giving literature by examining not only how much subjects give to charity, but also which charities subjects prefer. We operationalize this choice in an artefactual field experiment with a representative sample of respondents. We then use these data to structurally model motives for giving. The novelty of this design allows us to ask several interesting questions regarding the choices one undertakes when deciding both whether and how much to give to charity. Further, we ask these questions in the context of a standard utility framework. Given the unique set up of this experiment, we also explore how these distributional preference parameters differ by charity choice and from what we have observed in the past. We find that there is more variation within demographics and charity types than across distributions.
    Date: 2016
  8. By: Christopher J. Flinn; Ahu Gemici; Steven Laufer
    Abstract: We estimate a partial and general equilibrium search model in which firms and workers choose how much time to invest in both general and match-specific human capital. To help identify the model parameters, we use NLSY data on worker training and we match moments that relate the incidence and timing of observed training episodes to outcomes such as wage growth and job-to-job transitions. We use our model to offer a novel interpretation of standard Mincer wage regressions in terms of search frictions and returns to training. Finally, we show how a minimum wage can reduce training opportunities and decrease the amount of human capital in the economy.
    Keywords: Minimum Wage ; On-the-job training ; Wage growth
    JEL: J64 J24
    Date: 2016–07–13

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