nep-pbe New Economics Papers
on Public Economics
Issue of 2015‒10‒04
24 papers chosen by
Thomas Andrén

  1. How should a government finance redistribution policies? By Masaya Yasuoka; Minoru Hayashida
  2. A Tale of Tax Policies in Open Economies By Stephane Auray; Aurelien Eyquem; Paul Gomme
  3. Labour Supply in New Zealand and the 2010 Tax and Transfer Changes By Creedy, John; Mok, Penny
  4. Payroll Taxation and the structure of qualifications and wages in a segmented frictional labor market with intra-firm bargaining By Clément Carbonnier
  5. Optimum Commodity Taxation with a Non-Renewable Resource By Julien DAUBANES; Pierre LASSERRE
  6. Favoritism toward the Poor and a Discontinuous Tax Structure By Sato, Hideki
  7. Optimal Taxation, Marriage, Home Production, and Family Labor Supply By Andrew Shephard; George-Levi Gayle
  8. The Volatility of School District Income Tax Revenues: Is Tax Base Diversification a Good Idea? By Joshua Hall; Antonis Koumpias
  9. State Taxes and Spatial Misallocation By Owen Zidar; Juan Carlos Serrato; Eduardo Morales; Pablo Fajgelbaum
  10. Local Tax: A comparison of hypotheses By Patrizia Lattarulo; Alessandro Petretto
  11. Does eliminating international profit shifting increase tax revenue in high-tax countries? By Patrice Pieretti; Giuseppe Pulina
  12. Can State Tax Policies Be Used to Grow Small and Large Businesses? By Eric Borchers; John Deskins; Amanda Ross
  13. Age-dependent taxes with endogenous human capital formation By Carlos da Costa
  14. Earnings responses to discontinuities in social security contributions: Evidence from Dutch administrative data By Nicole Bosch; Maja Micevska Scharf
  15. How can a country 'graduate' from procyclical fiscal policy? Evidence from China By Fuest, Clemens; Xing, Jing
  16. The optimal timing of UI benefits: theory and evidence from Sweden By Jonas Kolsrud; Camille Landais; Peter Nilsson; Johannes Spinnewijn
  17. Inequality and Public Debt: A Positive Analysis By Ryo Arawatari; Tetsuo Ono
  18. Optimal Wealth Taxation: Redistribution and Political Economy By Ivan Werning
  19. A structural analysis of labour supply and involuntary unemployment in the Netherlands By Henk-Wim de Boer
  20. In-Kind Taxes, Behavior, and Comparative Advantage By Casey B. Mulligan
  21. Wealth and Stock Market Participation: Estimating the Causal Effect From Swedish Lotteries By Robert Ostling; Erik Lindqvist; David Cesarini; Joseph Briggs
  22. European identity and redistributive preferences By Joan Costa-i-Font; Frank Cowell
  23. Income Polarization in the People’s Republic of China: Trends and Changes By Wan, Guanghua; Wang, Chen
  24. What Drives Inequality? By Jon D. Wisman

  1. By: Masaya Yasuoka (School of Economics, Kwansei Gakuin University); Minoru Hayashida (Faculty of Economics and Business Administration, Tne University of Kitakyushu)
    Abstract: In OECD countries, redistribution policies are provided for young and old generations. Taxation of many kinds to finance the redistribution policy exists, just as redistribution policies of many kinds exist. Our paper sets a model with heterogeneous labor productivity for households and sectors of two types: a skilled sector and an unskilled sector. The model elucidates how the government should collect tax revenue for redistribution policies. Results show that the labor income tax can always shrink income inequality. However, the consumption tax increases wage inequality between skilled and unskilled sector. It is not always sufficient to shrink income inequality after redistribution, even if skilled workers increase. A corporate tax shrinks income inequality if intertemporal consumption is substitutive. Results show that the redistribution policy effects depend on how the government collects tax revenue.
    Keywords: Income inequality, Redistribution, Taxation
    JEL: H21 H23 E64
    Date: 2015–10
  2. By: Stephane Auray (CREST-Ensai and Universite du Littoral Cote d'Opale); Aurelien Eyquem (CREST-Ensai, CNRS, and GATE-Lyon Saint-Etienne); Paul Gomme (Concordia University and CIREQ)
    Abstract: To evaluate fiscal policy reforms for Euro-area countries, this paper develops and calibrates a small open economy model. Debt reduction reforms require higher tax rates in the short term in exchange for lower rates in the long term as the debt servicing burden falls. Using the capital income tax to implement such a policy leads to welfare gains; the consumption tax, a very small welfare gain; and the labor income tax, a welfare loss. Holding fixed the long run debt-output ratio, offsetting a lower capital income tax with either a higher labor income or consumption tax generally yields welfare gains.
    Keywords: Fiscal policies, open economies, public deficits, tax reforms.
    JEL: E31 E62 F41
    Date: 2015–09
  3. By: Creedy, John; Mok, Penny
    Abstract: This paper examines the simulated labour supply responses to the personal tax and transfer policy changes introduced in New Zealand in 2010, and the implications for revenue and income distribution. The main changes examined are the increase in the GST rate from 12.5 to 15 per cent, along with reductions in personal income tax rates and increases in the main benefit payments and assistance to families with children, to compensate for the rise in GST. The simulated labour supply responses were obtained using the Treasury’s behavioural microsimulation model, TaxWell-B. The 2009/10 Household Economic Survey (HES) was used. The combined effect of all policy changes is to increase average labour supply slightly for all demographic groups. Labour force participation of sole parents is simulated to increase by 0.86 percentage points. In considering separate components, the change in income tax rates is found to have the largest effect on labour supply. This is not surprising given that it affected a large proportion of the population while the changes to the benefit system and assistance to families with children apply only to certain groups. The reforms are found to be approximately distribution neutral, in terms of the Gini inequality measure of after-tax income per adult equivalent person.
    Keywords: Taxes and transfers, Labour supply, Discrete choice model, Microsimulation,
    Date: 2015
  4. By: Clément Carbonnier (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS)
    Abstract: The present paper investigates the incidence of payroll taxation - and more generally labor income taxation - in a search and matching model. The model considers a production function with different type of workers, allowing to understand the interactions between segmented labor markets. Furthermore, the equilibrium is reach through a double process of intra-firm wage bargaining ex post and labor demand ex ante. The model is derived analytically for linear tax function differentiated for worker type, and numerically for non-linear tax functions. The bargaining power parameter is interpreted as reflecting the intra-segment substitutability, in parallel to the inter-segment substitutability deriving from the production function and the segment size and productivity. Some standard results are found, such as the wages, unemployment and incidence increasing with respect to bargaining power; or the payroll tax burden falling mainly on workers. Moreover, it is shown that over-shifting of payroll taxes on net wages may happen. It is also shown that a stronger bargaining power induced weaker direct effect of taxes but larger crossed effects on other segments. In addition, marginal incidence decreases with respect to the payroll tax level and is therefore significantly lower than mean incidence, which may induce an underestimation of overall incidence by empirical analyses. This also induces a marginally decreasing effect on loabor costs of payroll tax cuts.
    Keywords: Search and matching, segemented labor market, intra-firm bargaining, tax incidence
    Date: 2014–09–15
  5. By: Julien DAUBANES; Pierre LASSERRE
    Abstract: Optimum commodity taxation theory asks how to raise a given amount of tax revenue while minimizing distortions. We reexamine Ramsey's inverse elasticity rule in presence of Hotelling-type non-renewable natural resources. Under standard assumptions borrowed from the non-renewable-resource-extraction and from the optimum-commodity-taxation literatures, a non-renewable resource should be taxed in priority whatever its demand elasticity and whatever the demand elasticity of regular commodities. It should also be taxed at a higher rate than other commodities having the same demand elasticity and, while the tax on regular commodities should be constant, the resource tax should vary over time. When the generation of reserves by exploration is determined by the net-of-tax rents derived during the extraction phase, reserves become a conventional form of capital and royalties tax its income; our results contradict Chamley's conclusion that capital should not be taxed at all in the very long run. In an autarkic economy, absent any subsidy to reserve discoveries, the optimal tax rate on extraction obeys an inverse elasticity rule almost identical to that of a commodity whose supply is perfectly elastic. As a matter of fact, there is a continuum of optimal combinations of reserve subsidies and extraction taxes, irrespective of whether taxes are applied on consumption or on production. When the government cannot commit, extraction rents are completely expropriated and subsidies are maximum. In general the optimum Ramsey tax not only causes a distortion of the extraction path, as happens when reserves are given, but also distorts the level of reserves developed for extraction. When that distortion is the sole effect of the tax, it is determined by a rule reminiscent of the inverse elasticity rule applying to elastically-supplied commodities. In an open economy, Ramsey taxes further acquire an optimum-tariff dimension, capturing foreign resource rents. For countries that import the resource, the result that domestic resource consumption is to be taxed at a higher rate than conventional commodities having the same demand elasticity emerges reinforced.
    Keywords: optimum commodity taxation, inverse elasticity rule, non-renewable resources, hotelling resource, supply elasticity, demand elasticity, capital income taxation
    JEL: Q31 Q38 H21
    Date: 2015
  6. By: Sato, Hideki
    Abstract: This paper aims to theoretically clarify the following two points. First, even though the government shows favoritism toward the poor and wants to exempt low-income taxpayers and secure its necessary income tax revenue by taxing only high-income taxpayers, the government ends up taxing the poor, which is in opposition to favoritism, due to its inability to observe individual taxpayers'income levels. Second, even without observing each taxpayers' income level, if favoritism is sufficiently strong, the government can discontinuously resolve such unintentional taxation.
    Keywords: Favoritism, Optimal income taxation, Tax evasion, Nash equilibrium.
    JEL: D82 H21 H26
    Date: 2015–04
  7. By: Andrew Shephard (University of Pennsylvania); George-Levi Gayle (Washington Unversity in St. Louis)
    Abstract: This paper develops an empirical approach to optimal income taxation design within an equilibrium collective marriage market model. Taxes distort labour supply and time allocation decisions, as well as marriage market outcomes, and the within household decision process. Using data from the American Community Survey and American Time Use Survey we structurally estimate our model and explore empirical design problems. We consider the optimal design problem when the planner is able to condition taxes on marital status, as in the U.S. tax code, but for married couples we allow for an arbitrary form of tax jointness. We also show how design problem changes when we introduce cohabitation as an alternative state, offering many of the same economic benefits of marriage, but with the informational friction that forces individuals in the cohabitation and single state to be subject to the same tax schedule.
    Date: 2015
  8. By: Joshua Hall (West Virginia University, College of Business and Economics); Antonis Koumpias (Georgia State University, Department of Economics)
    Abstract: School districts typically derive their own-source revenue from the property tax. Ohio is a prominent exception as local school districts have the option of diversifying their revenue base by adopting a residency-based income tax. While diversification has clear benefits, a potential downside is greater revenue volatility. Using a panel of 609 Ohio school districts from 1990 to 2008, we find that while school district revenues from the income tax are pro-cyclical, they fluctuate mildly. We also find that for every dollar increase in school district income, revenues from the income tax increased by 25 cents per pupil.
    Keywords: revenue volatility, tax base diversification, Ohio, short-run elasticity
    JEL: H71 H75
    Date: 2015–06
  9. By: Owen Zidar (University of Chicago); Juan Carlos Serrato; Eduardo Morales (Princeton University); Pablo Fajgelbaum (UCLA)
    Abstract: Dispersion in sales, income, and corporate taxes across U.S. states leads to spatial misallocation by distorting workers' decisions about where to live and how much to consume, as well as firms' decisions about where to locate, how much to produce, and where to sell. How big is the impact of this spatial misallocation on real output and welfare? To answer this question we build a quantitative trade model with imperfect firm and labor mobility that accommodates heterogeneity in tax structures across states. In the model, workers decide where to locate based on income, cost of living, and local amenities, while firms decide where to locate and how much to produce based on productivity, market potential, and costs of hiring workers and using land and intermediate inputs. The extent of misallocation depends on the elasticity of the number of firms with respect to profits, of employment with respect to real wages, and of inter-state trade with respect to import prices. We estimate these elasticities using data on state taxes and economic activity in the U.S. since 1980 and structural equations from the model that link variation in firm location, employment, and trade to variation in sales, income, and corporate taxes across states and over time. We then use the estimated elasticities and the structure of the model to predict the real-income effects associated with the changes in the number of firms, labor supply, and internal trade generated with counterfactual changes in the state tax distribution.
    Date: 2015
  10. By: Patrizia Lattarulo (Istituto Regionale per la Programmazione Economica della Toscana); Alessandro Petretto (Università di Firenze)
    Abstract: The progressive intensification of the tax burden at local scale which has taken place in the last few years as well as the want of stable resources by local bodies is urging a general reconsideration of the modalities in which Italian municipalities are financed. This work discusses the introduction of the Local Tax in Italy, and presents different hypotheses on how it should be devised. The first part recalls the theoretical principles underpinning a tax scheme aimed at financing municipal services and confirms the soundness of a real estate property tax; the second part illustrates the equity implications of the reform proposals meant to shift from the property tax to the Local Tax; the third part presents a comparison among the different types of local tax recommended in the current debate, drawing attention to the possible effects on the tax burden and on the balancing of local bodies’ budgets. The hypotheses compared are a “secondary” municipal property tax (Imposta Municipale Secondaria – IMU S), a “minimal” local tax; and a local tax that involves a partial or complete exemption for the main house. The first hypothesis has a poor effect, particularly as regards the goal of simplification, given the low amounts and the reduced number of municipalities involved, so that it does not seem appropriate as a means of local financing. The second one, which complies with vertical harmonization, modifies the taxable base of municipalities, thus implying a reform of their present organization, a fact that, considering the current budgetary difficulties, makes this the most complex of these hypothesis. The third one, which is the one privileged in the current debate, pursues the goals of equity; the present work analyzes the possible effects of the alternatives of partial versus total exemption for the main house and discusses the modalities to finance the manoeuvre. The financing of the exemption for the main house through transfer taxes is obviously the easiest and straightest way, but it lessens the tax autonomy, and thus the financial responsibility, of local governments. Conversely, financing the exemption with an increase of the property tax on secondary houses has a limited impact in terms of tax burden and municipal revenues, since the two amounts largely compensate each other. Then again, the distributive impact is quite uncertain. From a distribution point of view, this works underlines the efficacy of a system of permanent deductions as well as the prospective relevance of Land Registry’s reform.
    Keywords: taxation, local finance, real estate property taxes
    JEL: H31 H71
    Date: 2015
  11. By: Patrice Pieretti (CREA, Université de Luxembourg); Giuseppe Pulina (CREA, Université de Luxembourg)
    Abstract: The paper presents a simple model to analyze under which conditions BEPS initiatives launched by the OECD can be successful, given that these actions may encourage MNCs to intensify the international relocation of substance based activities. Within this framework, we discuss under which conditions the removal of tax-motivated profit shifting can successfully increase tax revenue in the onshore region.
    Keywords: BEPS, Profit shifting, Activity shifting, Tax havens, Multinational firms
    JEL: F21 F23 H25 H26
    Date: 2015
  12. By: Eric Borchers (Creighton University); John Deskins (West Virginia University, College of Business and Economics); Amanda Ross (West Virginia University, College of Business and Economics)
    Abstract: The existing literature studying the relationship between small business activity and U.S. state tax policy has focused primarily on a few measures of small business. We expand this literature by estimating the effect of state tax policy on small businesses by using a broader measures of small business activity using a longitudinal dataset for the U.S. states. We also estimate the relationship between state tax policy and large business activity. Results provide evidence that state tax policy can influence small business firm, establishment, payroll, and employment growth in important ways but provide limited evidence that such policy significantly influences large business growth.
    JEL: H2 H7 R1
    Date: 2015–05
  13. By: Carlos da Costa (Fundacao Getulio Vargas)
    Abstract: We calculate optimal age-dependent labor income taxes in an environment for which the age efficiency profile is endogenously determined by human capital investment. Heterogeneous individuals are exposed to idiosyncratic shocks to their human capital investments, a key element, along with the endogeneity of human capital itself in the determination of optimal age-dependent taxes. Our results highlight the complementary role of capital income taxation when human capital is endogenous. The nature of human capital accumulation is quantitatively relevant for determining the age dependence of income taxes. We assess the cost of ignoring the endogenous nature of age-efficiency profiles.
    Date: 2015
  14. By: Nicole Bosch; Maja Micevska Scharf
    Abstract: We analyse the effects of social security contributions (SSCs) by examining the distribution of earnings close to thresholds in the schedule in the Netherlands. The shape of the earnings distribution provides information on behavioural and incidence effects of SSC. We consider three earnings concepts, four types of contributions and five thresholds at which marginal rates change. The basic idea is that a discontinuity in the marginal SSC rate should cause a discontinuity in the distribution of at least one of three earnings concepts: labour costs, gross earnings and net earnings.  We use a rich administrative dataset containing observed payments on most SSCs for the entire working population for the years 2006-2012. Our finding that the density of gross earnings is smooth is an indication of small behavioural responses and is consistent with the results in recent empirical studies that attribute this to the complexity of the tax system, small changes and non-salience. Smoothness of gross earnings challenges the standard incidence theory prediction of full shifting of SSCs to employees. New and more puzzling is the finding of a smooth distribution of both net earnings and labour costs. The smooth distribution of these earnings concepts renders the results on incidence inconclusive. This lack of ‘deterministic’ discontinuity can mainly be explained by measurement errors resulting from the complexity of the institutional system and the rather small changes in marginal rates. A general finding of this paper is that this kind of cross-sectional analysis requests high quality data on SSCs which are rare.
    JEL: H22 H24 H55
    Date: 2015–09
  15. By: Fuest, Clemens; Xing, Jing
    Abstract: In this study, we analyze the cyclicality of fiscal policies in China during the period 1978-2013. We find that the cyclicality of local government spending in China significantly affects the cyclicality of total government spending. By employing both time-series and province-level panel data, we show that local budgetary government spending was strongly procyclical during the 1980s, but it became counter-cyclical with respect to nationwide output fluctuations and acyclical with respect to region-specific output shocks since the mid-1990s. We argue that these are likely to be consequences of the 1994 fiscal reform, which revamped the fiscal relations between the central and local governments, reduced the procyclicality of local government budgetary revenue and brought in counter-cyclical intergovernmental transfers. Findings of this study contribute to the debate on how developing and emerging countries, in particular those with federal fiscal structures, could reduce the procyclicality of their fiscal policies.
    Keywords: fiscal federalism,tax reform,government spending
    JEL: H71 H72 H77
    Date: 2015
  16. By: Jonas Kolsrud; Camille Landais; Peter Nilsson; Johannes Spinnewijn
    Abstract: This paper provides a simple, yet general framework to analyze the optimal time profile of benefits during the unemployment spell. We derive simple sufficient-statistics formulae capturing the insurance value and incentive costs of unemployment benefits paid at different times during the unemployment spell. Our general approach allows to revisit and evaluate in a transparent way the separate arguments for inclining or declining profiles put forward in the theoretical literature. We then estimate our sufficient statistics using administrative data on unemployment, income and wealth in Sweden. First, we exploit duration-dependent kinks in the replacement rate and find that the moral hazard cost of benefits is larger when paid earlier in the spell. Second, we find that the drop in consumption determining the insurance value of benefits is large from the start of the spell, but further increases throughout the spell. On average, savings and credit play a limited role in smoothing consumption. Our evidence therefore indicates that the recent change from a flat to a declining benefit profile in Sweden has decreased welfare. In fact, the local welfare gains push towards an increasing rather than decreasing benefit profile over the spell.
    Keywords: Unemployment; dynamic policy; sufficient statistics; consumption smoothing
    JEL: H20 J64
    Date: 2015–07
  17. By: Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study extends the multi-country, politico-economic model of fiscal policy developed by Song, Storesletten, and Zilibotti (2012) to incorporate wage inequal- ity within each country. In this extended framework, we present conflict over fiscal policy within and across generations and show that a low-inequality country real- izes tight fiscal policy with low public debt accumulation, whereas a high-inequality country experiences loose fiscal policy with high public debt. This model predic- tion is consistent with empirical evidence from OECD countries for the past three decades.
    Keywords: scal policy; inequality; probabilistic voting; public debt; small openeconomies.
    JEL: D72 E62 F34 H41 H60
    Date: 2015–01
  18. By: Ivan Werning (MIT)
    Abstract: Slides for plenary talk delivered at the annual meeting of the Society for Economic Dynamics.
    Date: 2014
  19. By: Henk-Wim de Boer
    Abstract: Most structural models for labour supply ignore the possibility of involuntary unemployment which may lead to biased behavioural responses. This may have important policy implications. We estimate a structural model for labour supply without and with involuntary unemployment for the Netherlands, using data for the period 2006-2009. We estimate both models for four groups separately: singles without children, single parents, couples without children and couples with children. We use information on job search behaviour to estimate the determinants of involuntary unemployment. We find that average labour supply elasticities are only slightly lower in the model with involuntary unemployment than in the model without involuntary unemploy- ment. The main reason for this small bias is the relatively small share of individuals who are involuntary unemployed in the period 2006{2009. A simulation of tax-benefit reforms confirms that the upward bias in average labour supply responses is limited in the model without involuntary unemployment. Only for subgroups with a high risk of being involuntary unemployed, such as lower educated individuals and immigrants, we find a relatively large upward bias in labour supply elasticities in the model without involuntary unemployment.
    JEL: C25 C52 H31 J22
    Date: 2015–09
  20. By: Casey B. Mulligan
    Abstract: This paper treats taxation in kind (IKT) as an example of price regulation, emphasizing IKT-avoidance behavior, and its interactions with the other costs of price controls. This emphasis fundamentally changes efficiency conclusions, and adds new ones. IKTs do not in fact randomly sample suppliers. Large-scale IKTs, and not small-scale ones, may have especially large average efficiency costs. Ransoms or “commutation fees” are an IKT policy option, but are only efficiency enhancing in specific situations: more heterogeneity among suppliers, and avoidance technologies that result in avoidance behaviors that are poor signals of a supplier’s opportunity cost. Avoidance behaviors are one reason why the social costs of wars and other public projects involving IKTs may have been underestimated.
    JEL: H56 K2 L51
    Date: 2015–09
  21. By: Robert Ostling (Stockholm University); Erik Lindqvist (Stockholm School of Economics); David Cesarini (New York University); Joseph Briggs (New York University)
    Abstract: In this paper we estimate the causal effect of wealth on stock market participation. The positive cross-sectional relationship between participation and wealth is well-established, with previous work suggesting that moderate costs of stock market participation are capable of rationalizing the decision of most non-participants. In our study we use a large sample of Swedish lottery players whom were randomly assigned over 1 billion USD, linked to administrative tax records of asset holdings, to precisely identify both the effect of wealth and the costs necessary to explain non-participation. Although we estimate a positive effect of wealth on participation, our estimate is much smaller than that implied by the cross-section. Furthermore, our estimates of participation costs are 10-20 times higher than those proposed in previous studies. We interpret these results within a structural model of life-cycle stock market participation, and use participation responses following random wealth assignment to estimate entry and participation costs conditional on a variety of demographic and individual characteristics. We conclude that it is unlikely that fixed financial costs are credible explanations for equity market non-participation.
    Date: 2015
  22. By: Joan Costa-i-Font; Frank Cowell
    Abstract: How important is spatial identity in shifting preferences for redistribution? This paper takes advantage of withincountry variability in the adoption of a single currency as an instrument to examine the impact of the rescaling of spatial identity in Europe. We draw upon data from the last three decades of waves of the European Values Survey and we examine the impact of joining the single currency on preferences for re-distribution. Our instrumentation strategy relies on using the exogenous effect of joining a common currency, alongside a battery of robustness checks and alternative instruments. Our findings suggest that joining the euro has a boosting effect on European identity; an opposite and comparable effect is found for national pride. We find that European identity increases preferences for redistribution, and that national pride exerts an equivalent reduction in preferences for redistribution.
    Keywords: Spatial identity; Europe; welfare state support
    JEL: D69 H53 O52
    Date: 2015–07
  23. By: Wan, Guanghua (Asian Development Bank Institute); Wang, Chen (Asian Development Bank Institute)
    Abstract: This paper estimates income polarization in the People’s Republic of China (PRC) from 1978 to 2010 and decomposes the estimated polarization by population subgroup. In addition, a framework is proposed to disentangle a change in polarization into a growth and a redistribution component. This framework is then used to quantify the contributions of various income sources to a rise in polarization in the PRC between 2002 and 2007. The analytical results suggest that (1) income polarization exhibited a broadly increasing trend from 1978 to 2010; (2) income polarization was large and rising among rural citizens, while low and declining among urban citizens; polarization of migrants also declined; (3) geographically, income polarization rose in east and particularly central PRC, while west PRC was most polarized with little change over time; and (4) the rise in polarization between 2002 and 2007 was mainly driven by the investment income, followed by transfers. Conversely, business income is polarization-reducing, especially in rural PRC. To a lesser extent, wage is also polarization-reducing, especially among migrants.
    Keywords: polarization decomposition; alienation; identification; income distribution; PRC
    JEL: D31 D63 D74 O53
    Date: 2015–09–25
  24. By: Jon D. Wisman
    Abstract: Over the past 40 years, inequality has exploded in the U.S. and significantly increased in virtually all nations. Why? The current debate typically identifies the causes as economic, due to some combination of technological change, globalization, inadequate education, demographics, and most recently, Piketty’s claim that it is the rate of return on capital exceeding the growth rate. But to the extent true, these are proximate causes. They all take place within a political framework in which they could in principle be neutralized. Indeed, this mistake is itself political. It masks the true cause of inequality and presents it as if natural, due to the forces of progress, just as in pre-modern times it was the will of gods. By examining three broad distributional changes in modern times, this article demonstrates the dynamics by which inequality is a political phenomenon through and through. It places special emphasis on the role played by ideology – politics’ most powerful instrument – in making inequality appear as necessary.
    Keywords: political power, distribution, legitimation, ideology
    JEL: D63 B00 Z18 N3
    Date: 2014

This nep-pbe issue is ©2015 by Thomas Andrén. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.