nep-pbe New Economics Papers
on Public Economics
Issue of 2014‒05‒04
twenty-six papers chosen by
Keunjae Lee
Pusan National University

  1. How Does Tax Progressivity and Household Heterogeneity Affect Laffer Curves? By Hans A. Holter; Dirk Krueger; Serhiy Stepanchuk
  2. Indirect taxes in oligopoly in presence of licensing opportunities By Sen, Neelanjan; Biswas, Rajit
  3. How to Improve Taxes and Transfers in Israel By Philip Hemmings
  4. Gross In-Migration and Public Policy in the U.S. during the Great Recession: An Exploratory Empirical Analysis, 2008-2009 By Cebula, Richard; Nair-Reichert, Usha; Coombs, Christopher
  5. Laffer Curves in Japan By Kengo Nutahara
  6. Dynamic Effects of Fiscal Policy in Japan: Evidence from a Structural VAR with Sign Restrictions By Kensuke Miyazawa; Kengo Nutahara
  7. Saving behavior and risk taking: Evidence from the Dutch Tax Reform in 2001 By Erik Floor; Arjan Lejour
  8. Can Tax Compliance Research Profit from Biology? By Benno Torgler
  9. Time preference and perceptions about government spending and tax: Smokers’ dependence on government support By Yamamura, Eiji
  10. Long run trends in the distribution of income and wealth By Roine, Jesper; Waldenström, Daniel
  11. Effects of Economic Freedom, Regulatory Quality, and Taxation on Real Income By Cebula, Richard
  12. Constrained inefficiency and optimal taxation with uninsurable risks By Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
  13. Informality and formality: Fiscal policy in DSGE model By Jesús Botero G.; Christian Vargas; Álvaro Hurtado Rendón; Humberto Franco
  14. Tax Incidence in the Presence of Tax Evasion By Doerrenberg, Philipp; Duncan, Denvil
  15. Distribution-Free Structural Estimation with Nonlinear Budget Sets By Liang, Che-Yuan
  16. Room at the Top: An Overview of Fiscal Space, Fiscal Policy and Inclusive Growth in Developing Asia. By Roy, Rathin
  17. Environmental Sustainability with a Pollution Tax By López, Ramón E.; Yoon, Sang W.
  18. Volatility and Growth: An Explanation for the Disagreement By Michael Jetter
  19. Capital income shares and income inequality in the European Union By Eva Schlenker; Kai D. Schmid
  20. A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth By Heshmati, Almas; Kim, Jungsuk
  21. The relationship between debt level and fiscal sustainability in OECD countries By Mariam Camarero; Josep Lluís Carrion-i-Silvestre; Cecilio Tamarit
  22. The "True" Deficit By Maria Marcanova; Ludovit Odor
  23. Rent Seeking and the Excess Burden of Taxation By Kahana, Nava; Klunover, Doron
  24. What do (disloyal) tax payers do: a taxonomy of the mechanisms of VAT evasion in Italy and proposed remedies By Vincenzo Visco
  25. Income Inequality, TFP, and Human Capital By Sequeira, Tiago; Santos, Marcelo; Ferreira-Lopes, Alexandra
  26. Does income inequality contribute to credit cycles? By Malinen, Tuomas

  1. By: Hans A. Holter (Uppsala University and UCFS); Dirk Krueger (Department of Economics, University of Pennsylvania, CEPR and NBER); Serhiy Stepanchuk (Cole Polytechnique Federale de Lausanne)
    Abstract: The recent public debt crisis in most developed economies implies an urgent need for increasing tax revenues or cutting government spending. In this paper we study the importance of household heterogeneity and the progressivity of the labor income tax schedule for the ability of the government to generate tax revenues. We develop an overlapping generations model with uninsurable idiosyncratic risk, endogenous human capital accumulation as well as labor supply decisions along the intensive and extensive margins. We calibrate the model to macro, micro and tax data from the US as well as a number of European countries, and then for each country characterize the labor income tax Laffer curve under the current country-specific choice of the progressivity of the labor income tax code. We find that more progressive labor income taxes significantly reduce tax revenues. For the US, converting to a flat tax code raises the peak of the laffer curve by 7%. We also find that modeling household heterogeneity is important for the shape of the Laffer curve.
    Keywords: Progressive Taxation, Fiscal Policy, Laffer Curve, Government Debt
    JEL: E62 H20 H60
    Date: 2014–03–01
  2. By: Sen, Neelanjan; Biswas, Rajit
    Abstract: This paper considers the relative efficiency of unit tax and ad valorem tax in Cournot doupoly in the presence of licensing opportunities after the announcement of the tax rates by the government. Anderson et al. (2001) shows that in such a case ad valorem tax welfare dominates the unit tax. However, it ignores the licensing possibilities. Interestingly, it is shown in the present paper that in case of fixed-fee licensing unit tax sometimes dominates ad valorem tax. However, unit tax and ad valorem tax are equally efficient in case of royalty licensing.
    Keywords: Unit tax, Ad valorem tax, Cournot Competition, Licensing
    JEL: D43 L13 L24
    Date: 2014–04–21
  3. By: Philip Hemmings
    Abstract: Ensuring tax and transfer systems bring sufficient revenue to reach macroeconomic fiscal targets, address societal goals in re-distribution and social welfare, recognise the influence taxation has on businesses’ competitiveness and adequately address environmental externalities is a tough challenge, arguably more so in Israel than in many other OECD countries. High interest payments and large defence spending make deficit and debt reduction more difficult, socio-economic divides remain wide and as a small-open economy Israel is highly exposed to mobile international capital and competition over international investment. And, as elsewhere, the incorporation of environmental issues into the tax system remains only partial. This review examines ways forward for policy on several fronts: indirect taxation; household income tax and social benefits; taxes on property and wealth; business taxation; and evasion, avoidance and administration issues. This Working Paper relates to the 2013 OECD Economic Review of Israel ( Comment améliorer le système de prélèvements et de prestations en Israël Les autorités doivent veiller à ce que le système de prélèvements et de prestations permette de dégager des recettes suffisantes pour réaliser les objectifs budgétaires retenus à l’échelle macroéconomique, d’atteindre les objectifs sociétaux visés en termes de redistribution et de protection sociale, de prendre en compte l’influence exercée par la fiscalité sur la compétitivité des entreprises, et de gérer de manière adéquate les externalités environnementales. L’ampleur de la tâche est redoutable, et elle l’est sans doute encore plus en Israël que dans de nombreux autres pays de l’OCDE. La lourdeur des charges d’intérêts et le volume des dépenses de défense rendent la réduction du déficit et de la dette plus difficile, les fractures socioéconomiques restent larges et, en tant que petite économie ouverte, Israël est fortement exposée aux effets de la mobilité des capitaux internationaux et à la concurrence que se livrent les pays pour attirer les investissements internationaux. En outre, comme ailleurs, l’intégration des questions environnementales dans le système d’imposition reste partielle. Nous examinons dans cette Étude les possibilités d’améliorer le cadre d’action publique sur plusieurs fronts : les impôts indirects, la fiscalité des revenus des ménages et le système de prestations sociales, les impôts sur la propriété immobilière et les autres formes de patrimoine, la fiscalité des entreprises, les problèmes de fraude et d’évasion fiscales, ainsi que les questions d’administration de l’impôt. Ce Document de travail se rapporte à l’Étude économique de l’OCDE d’Israël 2013 ( htm).
    Keywords: taxes, transfers, subsidies, tax administration, pensions, welfare, Israel, environmental taxation, company tax, tax evasion, tax avoidance, taxe, subventions, Israël, bien-être, évasion fiscale, fraude fiscale, fiscalité environnementale, administration fiscale, transferts, fiscalité des entreprises, pensions
    JEL: H23 H24 H25 H26 H53 I38
    Date: 2014–04–23
  4. By: Cebula, Richard; Nair-Reichert, Usha; Coombs, Christopher
    Abstract: For the period 2008-2009 of the “Great Recession,” the gross state-level in-migration rate was an increasing function of expected per capita personal income, state parks per capita, and warmer January temperatures. For the same study period, the gross in-migration rate was a decreasing function of the cost of living, the poverty rate, the average state income tax rate, per capita property taxation, and hazardous waste sites. All of the estimates yield results suggesting consistently, as in previous studies of earlier time periods, that migrants (consumer-voters) at the very minimum prefer lower state income tax burdens and lower property tax burdens. Consumer-voters’ evaluation of government services in determining their choice of location during the “Great Recession” appears to depend upon the type of government service. While consumer-voters on average appear to prefer states with greater public provision of state parks, our results do not indicate a strong preference for states with higher per pupil outlays on primary and secondary public education.
    Keywords: migration; public policy; state income tax rates; property tax levels
    JEL: D72 H71 H75 R23 R53
    Date: 2013–12–13
  5. By: Kengo Nutahara
    Abstract: This paper investigates the Laffer curves in Japan, based on a neoclassical growth model. It is found that while the labor tax rate is smaller than that at the peak of the Laffer curve, the capital tax rate is either very close to, or larger than, that at the peak of the Laffer curve. This problem is more serious when the consumption tax rate is high. It is also found that to maximize total tax revenue, the government should increase the labor tax rate but decrease the capital tax rate
    Date: 2013–11
  6. By: Kensuke Miyazawa; Kengo Nutahara
    Abstract: In this paper, we employ structural vector autoregression (VAR) with sign restrictions to identify the dynamic effects of fiscal policy shocks in Japan. We find that (i) an increase in government spending has positive effects on consumption and wages in the short run, but these effects are not persistent, and the effects on GDP are almost zero. We also find, surprisingly, that (ii) an increase in government revenue has significant positive effects on GDP, consumption, and investment in the medium and long run although it has negative effects in the short run. Finally, (iii) the balanced-budget spending policy scenario is better than deficit-spending and deficit-financed tax-cut policy scenarios.
    Date: 2013–11
  7. By: Erik Floor; Arjan Lejour
    Abstract: We estimate the impact of the marginal tax rate on the ownership in risk-bearing assets and on the share in total assets. In contrast to the literature, we use instrumental variables to correct for endogeneity of the marginal tax rate on capital income. Moreover, we use the exogenous variation in marginal tax rates from the Dutch tax reform of 2001. We find that a change in the difference in the marginal tax rate between risky assets and riskless assets has a significant positive impact on the ownership of risky assets and growth funds. A ten percentage point increase of the marginal rate results in a 0.5 percentage point increase of the probability of owning risky assets. The tax rate has no impact on the share of risky assets if we correct for endogeneity and selection.
    JEL: G11 H24 H31
    Date: 2014–04
  8. By: Benno Torgler
    Abstract: Historically, tax compliance has been a highly interdisciplinary avenue of research to which economics, psychology, law, sociology, history, political science, and accountancy have made valuable contributions. It is less well understood, however, whether we can glean useful insights into tax compliance by moving beyond the social sciences. In particular, the literature pays little attention to the relevance of biology. This paper attempts to remedy this shortcoming by examining the potential opportunities and limitations of introducing biological concepts into tax compliance research.
    Keywords: tax compliance; tax morale; tax evasion; biology; genetics
    JEL: H26 B40 B52 C63 D03 Z19
    Date: 2014–03
  9. By: Yamamura, Eiji
    Abstract: Previous studies show that smokers are likely to be more impatient and prefer immediate benefits compared with non-smokers. Thus, smokers are regarded as myopic people and therefore have a high time discount rate. Such a tendency is thought to be related not only to short-term benefits (as opposed to long-term benefits), but also free-riding behavior. Using individual data, this paper examines which types of government spending smokers with such characteristics prefer. The important findings are: (1) smokers consider the amount of government spending on social security and unemployment measures to be low and (2) smokers perceive their tax burden to be high. These findings imply that smokers tend to place greater importance on public expenditure that they will personally benefit from, but they are less willing to bear its cost. It is inferred from the estimation results that those who are myopic do not consider long-term benefits, which can result in a number of personal problems in the future, and they anticipate government expenditure will help them with such problems. That is, to enjoy the benefit of free riding, seemingly myopic people are more likely to prefer expenditure on social security and unemployment measures.
    Keywords: smoker; government spending; perceived tax burden; free rider.
    JEL: D31 H51 H55
    Date: 2014–03–25
  10. By: Roine, Jesper (Sockholm Institute of Transition Economies); Waldenström, Daniel (Uppsala Center for Fiscal Studies)
    Abstract: This paper reviews the long run developments in the distribution of personal income and wealth. It also discusses suggested explanations for the observed patterns. We try to answer questions such as: What do we know, and how do we know, about the distribution of income and wealth over time? Are there common trends across countries or over the path of development? How do the facts relate to proposed theories about changes in inequality? We present the main inequality trends, in some cases starting as early as in the late eighteenth century, combining previous research with recent findings in the so-called top income literature and new evidence on wealth concentration. The picture that emerges shows that inequality was historically high almost everywhere at the beginning of the twentieth century. In some countries this situation was preceded by increasing concentration, but in most cases inequality seems to have been relatively constant at a high level in the nineteenth century. Over the twentieth century inequality decreased almost everywhere for the first 80 years, largely due to decreasing wealth concentration and decreasing capital incomes in the top of the distribution. Thereafter trends are more divergent across countries and also different across income and wealth distributions. Econometric evidence over the long run suggests that top shares increase in periods of above average growth while democracy and high marginal tax rates are associated with lower top shares.
    Keywords: Income inequality; Income distribution; Wealth distribution; Economic history; Top incomes; Welfare state; Taxation
    JEL: D31 H20 J30 N30
    Date: 2014–04–25
  11. By: Cebula, Richard
    Abstract: This exploratory study investigates the hypothesis that higher levels of economic freedom in an “economic region” promote a higher level of economic activity and hence yield higher levels of per capita real income in that economic region, ceteris paribus. However, in the pursuit of a broader perspective, this study also investigates the hypothesis that the higher the taxation level relative to GDP, the lower the per capita real income level. Finally, in the pursuit of a broader perspective, this study also investigates the hypothesis that higher quality regulation leads to higher per capita real income level.
    Keywords: economic freedom; tax burden; regulatory quality
    JEL: H24 H25 H26 H31 H32 O41 O44 P14
    Date: 2013–11–05
  12. By: Piero Gottardi; Atsushi Kajii; Tomoyuki Nakajima
    Abstract: When individuals' labor and capital income are subject to uninsurable idiosyncratic risks, should capital and labor be taxed, and if so how? In a two period general equilibrium model with production, we derive a decomposition formula of the welfare e ects of these taxes into insurance and distribution e ects. This allows us to determine how the sign of the optimal taxes on capital and labor depend on the nature of the shocks, the degree of heterogeneity among consumers' income as well as on the way in which the tax revenue is used to provide lump sum transfers to consumers. When shocks a ect primarily labor income and heterogeneity is small, the optimal tax on capital is positive. However in other cases a negative tax on capital is welfare improving.
    Date: 2014–01
  13. By: Jesús Botero G.; Christian Vargas; Álvaro Hurtado Rendón; Humberto Franco
    Abstract: We develop a DSGE model of the Colombian economy to assess the effect of tax policy on informal employment and income distribution.The model recreates a small open economy, with persistent income inequality, a substantial degree of informality, and different possibilities of government intervention. This paper evaluates the consequences of government transfer payments to households with lower incomes. We find that although transfer payments have a positive effect on income distribution, financing them requires an adjustment in government finances (cut spending or increase revenue through the use of various taxes), have negative effects on the economic as a whole. ***** Desarrollamos un modelo DSGE de la economía colombiana para evaluar el efecto de la política fiscal sobre el empleo informal y distribución del ingreso. El modelo recrea una economía pequeña y abierta, con la persistente desigualdad de ingresos, un alto grado de informalidad, y las diferentes posibilidades de intervención del gobierno. Este documento evalúa las consecuencias de los pagos de transferencia del gobierno a los hogares con ingresos más bajos. Encontramos que si bien los pagos de transferencias tienen un efecto positivo sobre la distribución del ingreso, su financiación requiere un ajuste en las finanzas públicas (reducir el gasto o aumentar los ingresos a través del uso de diversos impuestos), tienen efectos negativos sobre la economía en su conjunto.
    Keywords: Public expenditure; exogenous shock; DSGE
    JEL: E62 D58
    Date: 2014–03–11
  14. By: Doerrenberg, Philipp (University of Cologne); Duncan, Denvil (Indiana University)
    Abstract: This paper studies the effect of tax evasion on the economic incidence of sales taxes. We design a laboratory experiment in which buyers and sellers trade a fictitious good in double auction markets. A per-unit tax is imposed on sellers, and sellers in the treatment group are provided the opportunity to evade the tax whereas sellers in the control group are not. We find that the market equilibrium price in the treatment group is economically and statistically lower than in the control group. This result is consistent with a theoretical model in which access to evasion opportunities reduces the effective tax rate and therefore dampens real behavioral responses. Our findings suggest that the benefits of tax evasion are not limited to the side of the market with access to evasion but are partly shifted to the non-evading side of the market. We discuss the implications of our findings for the distributional and welfare effects of taxes.
    Keywords: tax evasion, tax incidence, double auction
    JEL: H21 H22 H26 H3 D44
    Date: 2014–04
  15. By: Liang, Che-Yuan (Uppsala Center for Fiscal Studies)
    Abstract: I develop a structural method for evaluating labor supply in nonlinear budget sets that does not require any distributional assumptions. The model only requires that preferences are convex on the budget frontier. It can be extended to account for features such as fixed costs of work and the stigma cost of welfare participation. It can also be adapted for estimation of earnings, hours of work, and functions that depend on the labor supply distribution, including tax revenue and cumulative distribution functions. The method is applied to estimate the effects of taxes on various labor supply outcomes in the U.S. and Sweden.
    Keywords: nonlinear budget sets; structural models; distribution-free estimation; labor supply
    JEL: D04 H24 J22
    Date: 2014–04–14
  16. By: Roy, Rathin (National Institute of Public Finance and Policy)
    Date: 2014–04
  17. By: López, Ramón E.; Yoon, Sang W.
    Abstract: This paper examines environmentally sustainable growth with reference to climate change assuming two final outputs and two factors of production, accounting for both pollution flow and stock effects. If the elasticity of marginal utility of consumption is greater than one, an optimal pollution tax ensures sustainable growth without any further government intervention. Otherwise, either a high temporal elasticity of substitution in production or consumption is required for sustainability. Even a suboptimal pollution tax may allow sustainable development provided the tax time profile meets certain conditions that are developed and described in this paper.
    Keywords: sustainable growth, consumption flexibility, technological change, optimal pollution tax, Community/Rural/Urban Development, Environmental Economics and Policy, O44, Q01, Q56,
    Date: 2014–04
  18. By: Michael Jetter
    Abstract: This paper reconsiders the effects of volatile growth rates on growth itself. I show that the underlying endogeneity of government size can hide the net growth effects from volatility. There exists a positive direct and a negative indirect channel, with the latter operating through the size of the public sector. Risk-averse citizens respond to volatility either with precautionary savings (direct effect) or by demanding a stronger public safety net, which in turn lowers growth (indirect effect). However, the indirect channel is only available if the political regime allows citizens to determine their desired level of public services. I test this theory on a balanced panel of 95 countries from 1960 { 2010. The paper reveals the latent endogeneity of government size in a single growth equation framework and offers a simultaneous estimation method as an alternative. Results support the existence of both effects. The direct channel is stronger in autocratic societies, but as a country turns to democracy the indirect channel dominates. Volatility has a positive net effect on growth in autocratic nations, but a negative net effect in democratic societies. This finding explains why previous growth analyses of volatility at times reached contradicting conclusions.
    Keywords: Volatility; Business Cycles; Economic Growth
    JEL: E32 H11 O40
    Date: 2013–06–26
  19. By: Eva Schlenker (University of Hohenheim); Kai D. Schmid (Macroeconomic Policy Institute)
    Abstract: In this paper, we measure the effect of changing capital income shares upon inequality of gross household income. Using EU-SILC data covering 17 EU countries from 2005 to 2011 we find that capital income shares are positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. Using fixed effect models we find that changing capital income shares play an important role in the development of household income inequality. Hence, in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades.
    Keywords: Factor shares, income inequality, EU-SILC, fixed effects.
    JEL: D31 D33 E6 E25
    Date: 2014–04
  20. By: Heshmati, Almas (Jönköping University, Sogang University); Kim, Jungsuk (Sogang University)
    Abstract: A growing concern on widening income gap between the rich and the poor, the policy mismatch in tackling the relative poverty and income inequality have invited increasing volumes of research focusing on the nexus between equity and efficient growth. Developed countries have experienced the critical challenges and trade-off between their generous welfares provisions and economic growth. Developing countries on the other hand, especially countries in Asia are in the process of shifting their policy direction toward more inclusive growth where most members are transforming themselves from a low-income country into a middle income country (ADB, 2014). This has stimulated the need to understand causes of inequality and poverty for better formulate policies of fostering inclusive growth. Economic growth itself is an important source of welfare distribution in most developing Asian countries. Asian governments used many forms of fiscal policy to mitigate income gaps and poverty because they will substantially undermine the economic growth if left unchecked (ADB, 2014). The objective of this study is to review the previous studies, particularly literatures related with inclusive growth of advanced economies, and to offer an efficient policy options for Asian countries. Major determinant factors of growing inequality, poverty and a range of fiscal policy tools are evaluated from both country and cross-country perspectives. The initiated policy measures are based on experiences of advanced welfare economies and the lessons derived from them will be a meaningful guideline for Asian countries to achieve their goals of inclusive growth.
    Keywords: income inequality, poverty reduction, equity, inclusive growth, fiscal policy, developing Asia, advanced welfare economies
    JEL: D63 E62 I32 I38 J68 O47 P46
    Date: 2014–04
  21. By: Mariam Camarero (Jaume I University); Josep Lluís Carrion-i-Silvestre (University of Barcelona); Cecilio Tamarit (University of Valencia)
    Abstract: In this paper we unify the traditional approaches to testing for …s- cal sustainability considering the stock-ow system that …scal variables con…gure. Our approach encompasses previous ways of testing for sus- tainability. The results obtained for a group of 17 OECD countries point to weak …scal sustainability, as well as to the existence of cointegration between de…cit and debt, con…rming the relevance of the stock-ow ap- proach. Allowing for structural breaks and multicointegration turns out to be of critical importance to assess whether the …scal authorities apply their policies looking for sustainability and whether, simultaneously, they try to stabilize real debt target levels.
    Keywords: fi…scal sustainability, cointegration, unit roots, structural breaks
    JEL: H62 E62 C22
    Date: 2014–04
  22. By: Maria Marcanova (Council for Budget Responsibility); Ludovit Odor (Council for Budget Responsibility)
    Abstract: In this paper we propose a new methodology to improve the estimation of structural budget balances in Slovakia. Major innovations compared to currently used methods are in using more robust output gap estimates, inclusion of pensions in the analysis, imposing consistency between various gap measures, elimination of effects of different deflators and using time-varying elasticities. Significant attention is attached also to one-off and temporary measures, where we define 10 principles for identification. The estimation is complemented with bottom-up approaches which focus more directly on discretionary fiscal action. Latest changes to the European fiscal framework have strengthened significantly the role of structural budget balances. With the adoption of the Fiscal Compact there is a numerical threshold each year for the deviation of the structural balance from the medium - term objective (or the adjustment path toward it). Moreover, automatic correction mechanisms are activated if the deviation is above the threshold. The basic motivation of this paper was that independent fiscal institutions are going to play an important role in triggering these correction mechanisms.
    Keywords: fiscal policy, budget balance, structural fiscal balance, one-off measures
    JEL: E32 E60 E62 H30 H60 H62
    Date: 2014–03
  23. By: Kahana, Nava (Bar-Ilan University); Klunover, Doron (Bar-Ilan University)
    Abstract: The social costs of rent seeking are generally evaluated with respect to rent dissipation. A common assumption is complete rent dissipation so that the value of a contested rent is the value of social loss. When rent seekers earn taxable income, there is interdependence between the social cost of rent seeking through rent dissipation and the excess burden of taxation. Through the addition of substitution to rent seeking beyond leisure, rent seeking increases the excess burden of taxation under risk neutrality when leisure is non-inferior. We derive a condition for rent seeking to increase the excess burden of taxation under risk aversion. Our conclusion is that, when rent seekers can earn taxable income, rent seeking is more socially costly than is inferred from contest models alone, because of an increased excess burden of taxation.
    Keywords: rent seeking, excess burden of taxation, welfare cost of taxation, size of government
    JEL: H2
    Date: 2014–04
  24. By: Vincenzo Visco
    Date: 2014–03
  25. By: Sequeira, Tiago; Santos, Marcelo; Ferreira-Lopes, Alexandra
    Abstract: A fruitful recent theoretical literature has related human capital and technological development with income (and wages) inequality. However, empirical assessments on the relationship are still scarce. We relate human capital and total factor productivity (TFP) with inequality and discover that, when countries are assumed as heterogeneous and dependent cross-sections, human capital is the most robust determinant of inequality, contributing to increase inequality, as predicted by theory. There is evidence of great heterogeneity on the effects of TFP and Openness across countries. These new empirical results open a wide avenue for theoretical research on the country-specific features conditioning the causal relationship from human capital, technology and trade to inequality.
    Keywords: income inequality, human capital, technology
    JEL: I24 I32 O10 O33 O50
    Date: 2014–03–29
  26. By: Malinen, Tuomas
    Abstract: Recent literature has presented arguments linking income inequality on the financial crash of 2007 - 2009. One proposed channel is expected to work through bank credit. We analyze the relationship between income inequality and bank credit in panel cointegration framework, and find that they have a long-run dependency relationship. Results show that income inequality has contributed to the increase of bank credit in developed economies after the Second World War.
    Keywords: top 1% income share, bank loans, cointegration
    JEL: C23 D31 G21
    Date: 2014–04

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