Results for “piketty”
166 found

David Splinter responds to Saez and Zucman

When estimating income inequality with tax data, accounting for missing income presents many challenges. Researchers have adopted different approaches to address these challenges. Saez and Zucman (2020) discuss differences between the national income distributions of Piketty, Saez, and Zucman (PSZ, 2018) and Auten and Splinter (AS, 2019a). Saez and Zucman also make updates to their estimates for retirement income, partially responding to one of the concerns raised in AS. In this reply, I explain that SZ only partly correct this problem and do not address other issues raised by AS. For the allocation of underreported income—the most consequential difference between AS and PSZ—I show that the AS approach conforms with special audit studies in five ways, while the PSZ approach is inconsistent with them. I also provide historical background on the two projects, respond to technical points raised, and discuss estimates of tax progressivity.

Here is the link to the paper.

On audiobooks

From my email, from Robert Kwasny:

I imagine you listen to audio books rarely but, still, I wonder if you have any new thoughts on this topic.

Few thoughts of my own:

1. Shakespeare audiobooks are excellent. Much better than watching blu-rays. Unlike on real stage, Prospero (voiced by Ian McKellan in one production) can actually whisper softly to Miranda without worrying about people in the back rows. Stage directions are already included in the dialogue.

2. Pop psychology and self-help are terrible. Once cannot easily skip or skim the boring parts.

3. History books written by academics (e.g. The Sleepwalkers) are tough unless one already knows the necessary context. Otherwise it’s easy to get lost in the thicket of background facts. That’s probably true for all dense books. For example, Piketty’s books are available on Audible but I didn’t even bother sampling them. It’s just a wrong format.

4. I’ve had great experience with books written by authors with journalistic experience. Robert Caro’s works are excellent in audio form. William Manchester’s Churchill biography is good as well. Lawrence of Arabia by Scott Anderson too. Good audiobooks can’t be just one fact after another, they need to tell a story.

5. If the book’s author does the narration it’s usually bad. Voice acting is hard.

Unfortunately I don’t know of any book created specifically for audio. Where are biographies of Bob Dylan with songs included? Or books on rhetoric with audio of great speeches included? Audiobooks (and ebooks for that matter) don’t seem to be a new medium, at least so far. 10 years ago I would have not predicted that.

I have no new thoughts on audiobooks!  Though for my next book (which is co-authored), I was asked to read at least part of the AudioBook.  I will thus develop additional thoughts over time.

Tuesday assorted links

1. Further evidence for the importance of female role models: “We find that, among high-ability female students, being assigned a female professor leads to substantial increases in the probability of working in a STEM occupation and the probability of receiving a STEM master’s degree.”

2. Which Conversations with Tyler guest is your intellectual doppelgänger?  A fun test you can take.

3. “According to the researchers, consumers notice no difference when a quarter of the milk butter in a cake is replaced with larva fat. However, they report an unusual taste when it gets to fifty-fifty and say they would not want to buy the cake.”  Link here.

4. Krugman reviews Piketty (NYT).

5. Kevin Drum’s simple theory of DT’s optimism about the coronavirus.  And the economics of mandated sick pay.  And “Detroit to restore water service to unpaid homes to allow people to wash their hands to avoid coronavirus.

Thursday assorted links

1. NYT covers minimum wage and suicide debate.

2. “According to Novokmet, Piketty & Zucman, the UK’s “per adult national income (€ PPP)” was just ahead of Russia’s in 1980” — No further comment from me.

3. Balding on Huawei.

4. “Media Trades is a simple, free tool that addresses this problem by allowing people from the left and right to trade media content.

5. Guitar made out of 106 iPhones.

Claims about real rates of return

With recourse to archival, printed primary, and secondary sources, this paper reconstructs global real interest rates on an annual basis going back to the 14th century, covering 78% of advanced economy GDP over time. I show that across successive monetary and fiscal regimes, and a variety of asset classes, real interest rates have not been “stable”, and that since the major monetary upheavals of the late middle ages, a trend decline between 0.6-1.8bps p.a. has prevailed. A consistent increase in real negative-yielding rates in advanced economies over the same horizon is identified, despite important temporary reversals such as the 17th Century Crisis. Against their long-term context, currently depressed sovereign real rates are in fact converging “back to historical trend” – a trend that makes narratives about a “secular stagnation” environment entirely misleading, and suggests that – irrespective of particular monetary and fiscal responses – real rates could soon enter permanently negative territory. I also posit that the return data here reflects a substantial share of “nonhuman wealth” over time: the resulting R-G series derived from this data show a downward trend over the same timeframe: suggestions about the “virtual stability” of capital returns, and the policy implications advanced by Piketty (2014) are in consequence equally unsubstantiated by the historical record.

That is from a new paper by Paul Schmelzing, via the excellent Kevin Lewis.

Consistency about elasticities, revisited

From Ross Rheingans-Yoo, the content is all his, I will not do a double indent:

  • If marginal wealth is taxed an additional 0.5%/yr at the high end, then fewer people will amass and invest that much wealth—some will instead disperse it among a wider number of family members, donate it to charitable or political causes, or spend it on expensive consumption. (Saez and Zucman, in their potential-revenue analyses, assume that this effect is quite small, and that the wealthy will mostly accept lower returns on wealth.)
  • Similarly, if the marginal opportunities to invest became worse by 0.5%/yr, fewer people would chose to invest, by the same token. Additionally,the effects should be the same size, as it’s the same decision-makers facing the same incentives!
  • But if pushing on the price (read: rate of return) has little effect on the quantity of investment, then pushing on the quantity of investment should have a large​ effect on the price! (Unless we’re at some magic kink in the supply curve for unspecified reasons…)
  • So a small amount of additional capital competing for investment opportunities should quickly reduce the competitive rate of return.

What’s the practical upshot? Well, if the authors’ assumptions about revenues are right, then Piketty’s r>gr>g “wealth spiral” can’t proceed unchecked, since capital simply can’t accumulate without competition quickly reducing the average rate of return back below gg.

What is the incidence of the corporate income tax?

Emmanuel Saez and Gabriel Zucman seem to think the correct answer is to assume that there is no substitution away from capital or from the corporate sector:

This paper proposes a new way to do distributional tax incidence better connected with tax theory. It is crucial to distinguish current distributional analysis from tax reform distributional analysis. Current distributional analysis shows the current tax burden by income groups and should assign taxes on each economic factor without including behavioral responses: taxes on labor should fall on labor earners, taxes on capital on the corresponding asset owners, and taxes on consumption on consumers. This allows to distribute both pre-tax and post-tax current incomes and measure the economically relevant tax wedges on each factor without having to specify behavioral responses. Tax reform distributional analysis shows the impact of a tax reform and should describe the effect on pre-tax incomes, post-tax incomes, and taxes paid by income group separately and factoring in potential behavioral responses. Various scenarios can be considered given the uncertainty in behavioral responses. We illustrate our methodology using a simple neo-classical model of labor and capital taxation.

No Western fiscal authority I have heard of thinks of tax incidence in these terms.

There is an argument that you first write down the “no-response” burden in order to arrive at the actual estimated burden, as the authors seem to note.  That is not an argument for coming up with a “no adjustment” estimate and marketing it to The New York Times (and others?) as correct and based on normal assumptions, without first adjusting for incentives and capital responses and shifts in the ultimate tax burden.  Would we have known about these underlying assumptions — which lie behind their subsequent calculation of wealth inequality — at all, if not for the tireless work of Phil Magness and Wojtek Kopczuk on Twitter?

Returning to the paper, it has some quite weak sentences, such as: “But it [no adjustment] also has the advantage of not being dependent on assumptions on behavioral responses.”

You might as well argue that assuming zero price elasticity of demand “has the advantage of not being dependent on assumptions on behavioral responses.”  In reality, one is assuming about the least plausible behavioral response possible.

Here is some background material from Wojtek Kopczuk, which works through how the proffered inequality measures and corporate tax assumptions are related.  And from Steven Hamilton.  Here is also the recent David Splinter summary analysis on tax progressivity.  Wojtek notes in his Twitter thread:

The bottom line: corporate tax should be felt by other forms of capital. That’s the standard assumption. CBO makes it, Auten-Splinter make it, Piketty-Saez-Zucman make it. Who does not? Saez-Zucman (2019) do not.

Here is the semantic innovation from the Saez-Zucman paper:

We think it is more useful to say that cutting corporate taxes could increase workers’ wages rather than say
that the tax burden on workers would fall.

Say both!  Here are two well-known and also generally accepted AER papers suggesting that the corporate income tax places a burden on real wages.

Michael Smart agrees with me on the new Saez-Zucman piece:

Zucman has now kindly posted an early working paper to support the SZ assumption. I do not find this WP convincing. We’re simply told that the “natural description” of tax incidence is its legal incidence, i.e. 100% shareholder incidence of CIT.

I find this episode appalling, and I hope The New York Times is properly upset at having been “had.”

#TheGreatForgetting

Saturday assorted links

1. Human corpses keep moving for a year after death.

2. Scarce labor and low interest rates.  By Benzell and Brynjolfsson.

3. My Stubborn Attachments philosophy podcast, Elucidations, with Matt Teichman.

4. Are we living in the most influential time ever?

5. Average is Over: “These synthetic husbands have an average income that is about 58% higher than the actual unmarried men that are currently available to unmarried women.

6. Thomas Piketty slides based on his forthcoming book; the word “Mormon” does not appear.

Increases in Inequality Have Been Overestimated

Stephen Rose of the Urban Institute (not exactly a right-wing or libertarian think tank) compares recent studies measuring changes in inequality and finds that although inequality has increased the Piketty and Saez (2003) results, which generated a tremendous amount of discussion and research, are very likely over-stated.

The results from at least four studies were compared for three measures of income change: change in median incomes, share of growth captured by the top 10 percent, and the changing income share of  the top 1 percent. In all cases, Piketty and Saez (2003) were the outlier, showing the most increased inequality. And in all three measures of income change , Piketty, Saez, and Zucman (2018) found much less growth in income inequality than Piketty and Saez (2003).

This brief does a meta-analysis of different findings to estimate a “consensus” level of change…I find that instead of stagnating, real median incomes grew by just over 40 percent (1 percent a year) from  1979 to 2014;  the top 10 percent of the income ladder captured 45 percent of income growth from 1979 to  2014; and the share of the top 1 percent grew 3.5 percentage points.

All studies find that income inequality rose after 1979, but common perceptions that all income gain went to the top 10 percent and middle class incomes stagnated (or even declined) are wrong.

Russ Roberts also has several good videos showing how the numbers can be cut in various ways.

Wednesday assorted links

1. Markets in everything: Sol LeWitt sports bra.  And there is no great stagnation.

2. Canadian documentary about Jordan Peterson.  Covers gnosticism, the Heideggerian side, Jung, etc.  Not so much about the anti-PC stuff or the personality psychology.

3. Virtual reality gyms.

4. Chetty’s on-line Stanford class.

5. The drone wars heat up, this time in Syria and against Russia.

6. Dylan Matthews on Auten and Splinter and inequality debates.

The rate of return on everything

There is a new NBER paper on that topic by Òscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan M. Taylor, here is the abstract:

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run?Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

Here is what I learned from the paper itself:

1. Risky assets such as equities and residential real estate average about 7% gains per year in real terms.  Housing outperformed equity before WWII, vice versa after WWII.  In any case it is a puzzle that housing returns are less volatile but about at the same level as equity returns over a broader time span.

2. Equity and housing gains have a relatively low covariance.  Buy both!

3. Equity returns across countries have become increasingly correlated, housing returns not.

4. The return on real safe assets is much more volatile than you might think.

5. The equity premium is volatile too.

6. The authors find support for Piketty’s r > g, except near periods of war.  Furthermore, the gap between r and g does not seem to be correlated with the growth rate of the economy.

I found this to be one of the best and most interesting papers of the year.