Month: February 2016
Do higher marginal tax rates reduce income mobility?
It seems so, according to the job market paper from Mario Alloza (pdf):
The results obtained suggest that higher marginal tax rates reduce income mobility. Particularly, I find that an increase of one percentage point in the marginal rate is associated with declines of about 0.5-1.3% in the probability of changing deciles of income. A decrease of 7 percentage points in the marginal tax rate (slightly smaller than a standard deviation of non-zero changes in the rates) can account for about a tenth of the average income mobility in a year. The effect of taxes on mobility arises in specifications that consider income distributions both before and after taxes and transfers, suggesting that the impact of taxation on mobility goes beyond redistribution effects. The economic mechanism that induces this impact seems to be related to the labour market incentives created by changes in the tax schedule.
Interestingly, these effects are especially pronounced toward the bottom of the income distribution. If the implied labor supply response seems too high to you, then read some of the recent papers by Karel Mertens. The idea that taxes matter is making a comeback in economics, though I am not sure you would get that impression from most of the economics blogosphere.
Do note the mobility results cover taxes only, and not how the money is spent.
For the pointer I thank Peter Isztin.
Sunday assorted links
Why Do We Kiss?
Smithsonian: [K]issing helps heterosexuals select a mate. Women in particular value kissing early on. Saliva is full of hormones
and other compounds that may provide a way of chemically assessing mate suitability—that’s the biological brain stepping in.
…While kissing, couples exchange 9 milliliters of water, 0.7 milligrams of protein, 0.18 mg of organic compounds, 0.71 mg of fats, and 0.45 mg of sodium chloride, along with 10 million to 1 billion bacteria, according to one accounting.
Women are also more likely to say that a first kiss could be the decider for selecting a mate. Can the biological drive overcome the perception that your chosen one is a bad kisser? Wlodarski says it’s hard to separate the two, but that “I would hazard a guess that if someone thinks someone is a bad kisser it’s because their smell wasn’t right,” he says. Women have to be more selective because they face greater consequences when they make a poor mating decision—like having to carry a baby for nine months, says Wlodarski.
…Not every culture is down with the full-on mouth kissing enlivened by a wandering tongue. That seems to be a modern, and Western, convention, perhaps from the last 2,000 years, says Wlodarski. A study published in 2015 found that less than half of the cultures surveyed engage in romantic, sexual kissing.
There’s evidence—at least from written history—that in the past, kissing was primarily mutual face or nose rubbing, or even sniffing in close proximity. In Hindu Vedic Sanskrit texts, kissing was described as inhaling each other’s soul.
Arrived in my pile
Kenneth Scheve and David Stasavage, Taxing the Rich: A History of Fiscal Fairness in the United States and Europe.
Peter Conti-Brown, The Power and Independence of the Federal Reserve.
Daniel Oppenheimer, Exit Right: The People Who Left the Left and Reshaped the American Century.
If we have a U.S. recession this year, it will be a risk-based recession
U.S. consumers showed signs of strength in January, taking advantage of low oil prices to increase their spending and offering a welcome counterpoint to the gloom that has gripped investors and roiled markets since the start of the year.
Sales at retail stores and restaurants rose 0.2% in January from the prior month, the Commerce Department said Friday. And December’s retail sales were revised to a 0.2% gain instead of a drop, showing a better end to the year than initially estimated.
While that is good news for everyone, if only because of the implied wealth effect, it ought to give Keynesians special cheer. And from another WSJ piece:
The sharp drop this year in consumer-focused stocks is feeding fears of a recession, but those companies’ bonds are sending a more upbeat signal.
Bonds from companies such as retailers and restaurants, which are most closely tied to consumer-spending habits, have been strong performers this year, contrary to what analysts would expect if the economy were headed into a tailspin.
The disconnect is notable, because many investors view the bond markets as a more sober indicator of corporate financial health and economic conditions than stock markets.
A risk-based business cycle results when investors (and others) perceive an increase in the risk premium, and pull back their commitments accordingly. Here are previous MR posts on risk-based business cycle theory.
Antonin Scalia on economic rights
From 1985 (pdf):
But still, that seemed to me a peculiar way to put it — contrasting economic affairs with human affairs as though economics is a science developed for the benefit of dogs or trees; something that has nothing to do with human beings, with their welfare aspirations, or freedoms. That, of course, is a pernicious notion, though it represents a turn of mind that characterizes much American political thought. It leads to the conclusion that economic rights and liberties and qualitatively distinct from, and fundamentally inferior to, other noble human values called civil rights, about which we should be more generous….On closer analysis, however, it seems to me that the difference between economic freedoms and what are generally called civil rights turns out to be a difference of degree rather than of kind.
He worries, however, that conservatives want a non-activist Court, but then want the Court to do what they want on economic issues. Ultimately Scalia worried that if the Court gave too much credence to economic rights, it would end up with economic rights which are not sensible, and thus he wished to abide by a literally more conservative approach. He closed his beautiful essay with this:
…the task of creating what I might call a constitutional ethos of economic liberty is no easy one. But it is the first task.
I disagreed with him on many issues, but his presence on the Court was an important stepping stone for law and economics, and for philosophy as well I might add.
Addendum: “…justices die far more often when a member of the opposite party holds the White House.”
Beware your TV (hi, future!)
Samsung is warning customers about discussing personal information in front of their smart television set.
The warning applies to TV viewers who control their Samsung Smart TV using its voice activation feature.
When the feature is active, such TV sets “listen” to what is said and may share what they hear with Samsung or third parties, it said.
Saturday assorted links
Geography and Economic Growth
A 3-minute introduction to the effect of geography on economic growth drawing on some of Jeff Sach’s classic works. Includes some surprising facts about continents and coastlines!
This video is from our Principles of Macroeconomics course. We cover the multiple ways in which geography can influence growth in more depth in two sections of our Development Economics course.
Russia fact of the day
Russian mammoth ivory exports have been increasing steadily, averaging approximately 17 tonnes per year for 1991-2000 and averaging 60 tonnes per year for 2001-2013.
It is estimated that the mammoth ivory beneath the tundra has the potential to cover several hundred years’ worth of current elephant ivory sales.
Clemens and Pritchett on the new economic case for migration restriction
I haven’t read through this paper (pdf) yet, but it seems quite important and here is the abstract:
For decades, migration economics has stressed the effects of migration restrictions on income distribution in the host country. Recently the literature has taken a new direction by estimating the costs of migration restrictions to global economic efficiency. In contrast, a new strand of research posits that migration restrictions could be not only desirably redistributive, but in fact globally efficient. This is the new economic case for migration restrictions. The case rests on the possibility that without tight restrictions on migration, migrants from poor countries could transmit low productivity (“A” or Total Factor Productivity) to rich countries – offsetting efficiency gains from the spatial reallocation of labor from low to high-productivity places. We provide a novel assessment, proposing a simple model of dynamically efficient migration under productivity transmission and calibrating it with new macro and micro data. In this model, the case for efficiency-enhancing migration barriers rests on three parameters: transmission, the degree to which origin-country total factor productivity is embodied in migrants; assimilation, the degree to which migrants’ productivity determinants become like ‘natives’ over time in the host country; and congestion, the degree to which transmission and assimilation change at higher migrant stocks. On current evidence about the magnitudes of these parameters, dynamically efficient policy would not imply open borders but would imply relaxations on current restrictions. That is, the new efficiency case for some migration restrictions is empirically a case against the stringency of current restrictions.
If I am reading this correctly, the authors are considering moving away from their previous open borders position, simply to a “more immigration (within limits) would be better” position, much like the one I hold.
For the pointer I thank G.
Addendum: On Twitter, Michael says: “Thank you. View didn’t change: Trillion $ bills is comparative statics, need not imply ∞ adjustment speed. This paper dynamic.”
Almost a lost decade
The 19-country eurozone, the core of Europe’s economy, grew at an annual rate of 1.1 percent in the last quarter of 2015. But total economic output remained just slightly lower than when the global economic crisis began, in 2008.
Here is Jack Ewing from the NYT. Here is the blog, run by Thomas Cooley among others, European Economic Snapshot. And from the FT:
Gross domestic product in Italy — the eurozone’s third-largest economy — rose by just 0.1 per cent in the fourth quarter, missing economists’ expectations of a 0.3 per cent increase and raising concerns that the tepid return to growth that begun in 2015 after three years of recession is already fading.
“Italy is struggling to emerge from the great recession and despite some encouraging signs in the first part of 2015, growth lost momentum in the second half,” says Lorenzo Codogno, a visiting professor at the London School of Economics.
That is why I do not understand the common view that the eurozone crisis is over. Greece, by the way, has returned to a state of recession.
*Rich People Poor Countries*
That is the new and excellent book by Caroline Freund; the subtitle is The Rise of Emerging-market Tycoons and Their Mega Firms. It looks at the rise of billionaires in emerging markets, offers a new data base on how they earned their wealth, and takes a generally “pro-billionaire” stance, at least relative to many other sources.
Here is a tape of yesterday’s session on the book. The author summarizes, I give my comments a smidgen after 35:00, and then there is more. Here is also a new and related working paper by Freund and Sarah Oliver.
Friday assorted links
1. Clinton welfare reform was not such a big deal, one way or the other. And what it is like to be obsessed with mood affiliation.
2. Greg Ip on the popularity of big economics books.
3. “Neuromancer is a commissioned work.”
4. MIE: the woman who makes prosthetic pinkies for former Yakuza members. “Usually one of Fukushima’s fingers costs 180,000 yen ($1490), but she provides ex-yakuza in difficult financial situations with a discount.” She has made hundreds of such fingers, recommended.
5. How small is the world really?, how networked are you anyway?, and why it matters.
“If you could recommend only one book for me to read…”
That is a question from a very smart person, over thirty years of age, who claims not to have read very much (I don’t know how much).
So which book should I recommend?
Conditional on the person knowing me, the idea of simply introducing economics is not going to win, even if that would be the correct recommendation for many others. And “Collected Works” are not allowed.
How about a broadly philosophical novel, such as Don Quixote or Homer’s Odyssey or In Search of Lost Time? Moby-Dick? A play of Shakespeare? A current favorite, such as Ferrante or Knausgaard?
How about a perfectly constructed travel book, touting the virtues of a new and magical place? But most travel books I find dull, unsatisfying, and too scattered with wasteful, overly subjective sentences about sunsets and train trips.
A didactic, moralizing book, perhaps on charity or Effective Altruism?
For many people music may be more powerful than the written word, so perhaps the recent Jan Swafford biography of Beethoven, or John Eliot Gardiner’s book on Bach, or any number of good books on Mozart. A critical guidebook to some of the best movies available? Almost everyone can glean new ideas for their Netflix queue, even if they already have seen lots of films.
I don’t know of a biography which is inspirational for everyone or even most people, and I figure an intelligent person older than thirty already has been exposed to the world’s major religions.
How about a book which is a compendium for a hobby, such as a bird watcher’s guide, a Sotheby’s auction catalog, or a Fuchsia Dunlop cookbook?
I keep finding myself drawn to recommend a book which leads the advice recipient away from books, rather than toward them. Is that a strength or weakness of the book medium?
