Enough
Higher Income Is Associated With Less Daily Sadness but not More Daily Happiness
Kostadin Kushlev, Elizabeth Dunn & Richard Lucas
Social Psychological and Personality Science, forthcoming
Abstract:
Although extensive previous research has explored the relationship between income and happiness, no large-scale research has ever examined the relationship between income and sadness. Yet, happiness and sadness are distinct emotional states, rather than diametric opposites, and past research points to the possibility that wealth may have a greater impact on sadness than happiness. Using data from a diverse cross section of the U.S. population (N = 12,291), we show that higher income is associated with experiencing less daily sadness, but has no bearing on daily happiness. This pattern of findings could not be explained by relevant demographics, stress, and people’s daily time use. Although causality cannot be inferred from this correlational data set, the present findings point to the possibility that money may be a more effective tool for reducing sadness than enhancing happiness.
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Capital Taxation in the 21st Century
Alan Auerbach & Kevin Hassett
NBER Working Paper, January 2015
Abstract:
In his influential book, Capital in the 21st Century, Thomas Piketty argues forcefully that rising wealth and wealth inequality is an inherent characteristic of capitalist economies and calls for strong policy responses, in particular a substantial wealth tax implemented globally. This paper takes issue with the facts, logic, and policy conclusions in Piketty’s book, suggesting that the factors needed to support the inexorable rise in capital’s share and concentration are lacking and that among tax policy reforms aimed at dealing with economic inequality a wealth tax finds little support either in Piketty’s own work or elsewhere in the literature.
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The Rise and Decline of General Laws of Capitalism
Daron Acemoglu & James Robinson
NBER Working Paper, December 2014
Abstract:
Thomas Piketty’s (2013) book, Capital in the 21st Century, follows in the tradition of the great classical economists, like Marx and Ricardo, in formulating general laws of capitalism to diagnose and predict the dynamics of inequality. We argue that general economic laws are unhelpful as a guide to understand the past or predict the future, because they ignore the central role of political and economic institutions, as well as the endogenous evolution of technology, in shaping the distribution of resources in society. We use regression evidence to show that the main economic force emphasized in Piketty’s book, the gap between the interest rate and the growth rate, does not appear to explain historical patterns of inequality (especially, the share of income accruing to the upper tail of the distribution). We then use the histories of inequality of South Africa and Sweden to illustrate that inequality dynamics cannot be understood without embedding economic factors in the context of economic and political institutions, and also that the focus on the share of top incomes can give a misleading characterization of the true nature of inequality.
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Income Inequality and Political Polarization: Time Series Evidence Over Nine Decades
John Duca & Jason Saving
Review of Income and Wealth, forthcoming
Abstract:
Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by multiple factors driving these phenomena, potential feedback between inequality and polarization, measurement issues, and the statistical challenges of modeling non-stationary variables. We find that a more precise measure of inequality (the inverted Pareto–Lorenz coefficient) is more consistently and statistically related to polarization in the short and long runs than the less precise top 1 percent share of income. We find bi-directional causality between polarization and inequality, consistent with theoretical conjecture and less formal evidence in previous studies.
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Household Wealth Trends in the United States, 1962-2013: What Happened over the Great Recession?
Edward Wolff
NBER Working Paper, December 2014
Abstract:
Asset prices plunged between 2007 and 2010 but then rebounded from 2010 to 2013. The most telling finding is that median wealth plummeted by 44 percent over years 2007 to 2010, almost double the drop in housing prices. The inequality of net worth, after almost two decades of little movement, was also up sharply. Relative indebtedness expanded, particularly for the middle class, though the proximate causes were declining net worth and income rather than an increase in absolute indebtedness. The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall. Wealth inequality and the racial and ethnic wealth gap also remained largely unchanged, though there was some recovery of net worth for young households.
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Jason Jordan
European Political Science Review, forthcoming
Abstract:
A strong correlation exists between inequality and religion, such that societies marked by high inequality are more religious than those with more egalitarian income distributions. What explains this correlation? Insecurity theory argues that high inequality generates intense insecurities, leading the poor to seek shelter in religion for both psychological and material comfort. This article develops an alternative perspective that reverses the chain of causality. It argues that religious institutions and movements frequently resist both the centralization of state power and socialist efforts to organize the working class. As a result, powerful religious movements constrain state-led efforts to provide social protection, increasing income inequality. Analysis of the historical record and contemporary data from 19 Western democracies reveals strong evidence that past periods of church-state conflict shaped the size and structure of welfare state institutions and, by extension, contemporary patterns of inequality.
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Dean Lillard et al.
Social Science & Medicine, forthcoming
Abstract:
We investigate the association between adult health and the income inequality they experienced as children up to 80 years earlier. Our inequality data track shares of national income held by top percentiles from 1913-2009. We average those data over the same early-life years and merge them to individual data from the Panel Study of Income Dynamics data for 1984-2009. Controlling for demographic and economic factors, we find both men and women are statistically more likely to report poorer health if income was more unequally distributed during the first years of their lives. The association is robust to alternative specifications of income inequality and time trends and remains significant even when we control for differences in overall childhood health. Our results constitute prima facie evidence that adults’ health may be adversely affected by the income inequality they experienced as children.
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Charles Chuan He
University of Arizona Working Paper, November 2014
Abstract:
Consumers have benefited from decades of technological improvement in electronics, yet the distribution of their welfare gains are unexamined, despite interest in other measures of inequality. In this paper, I examine the welfare gains to different income cohorts from the development of multiple categories of electronic products. Income dependent preferences are estimated in a dynamic model of demand. Key utility parameters, unique to income cohort, are identified from moments created using micro-level data containing purchase and demographic information. My results suggest that the benefits from the rise of electronics products may be far more egalitarian than conventional measures of inequality. Welfare gains to consumers in the bottom third of the US income distribution average approximately $1,000, while gains to the top third benefit are about $2,500. This is twice as equal as related measures of consumption inequality.
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Economic Freedom and Growth in U.S. State-Level Market Incomes at the Top and Bottom
Travis Wiseman
Mississippi State University Working Paper, November 2014
Abstract:
This paper investigates the long-run dynamics of economic freedom and income growth across U.S. states over the period 1979 to 2011. Specifically, I examine how the benefits of economic freedom are spread across society by focusing on market income growth for the top 10% and bottom 90% of the income distribution. Results show that increases in overall freedom are associated with larger total average income growth. Also, when viewed separately, an increase in overall freedom is associated with larger income growth for income earners in the bottom 90% relative to the top 10%. These results hold for several specifications using the underlying components of economic freedom, as well as for specifications focused exclusively on low-income states. Additionally, I control for spatial dependence in both income growth and changes in economic freedom using a spatial panel Durbin model with fixed effects.
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Aki Roberts & Dale Willits
Homicide Studies, February 2015, Pages 28-57
Abstract:
Choices of inequality measure and homicide type may account for mixed findings on the income inequality–homicide link. We aim to acquaint criminologists with several income inequality measures beyond the familiar Gini index and apply the different measures to general and specific homicide rates, noting the practical effect of these choices on results. The income inequality measures differ in their fidelity to relative deprivation ideas, but still correlated highly with each other in data from 208 large U.S. cities. Multivariate analysis also found that all measures of income inequality had significant and positive associations with both overall and specific homicide rates.
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Building a More Mobile America — One Income Quintile at a Time
Shai Davidai & Thomas Gilovich
Perspectives on Psychological Science, January 2015, Pages 60-71
Abstract:
A core tenet of the American ethos is that there is considerable economic mobility. Americans seem willing to accept vast financial inequalities as long as they believe that everyone has the opportunity to succeed. We examined whether people’s beliefs about the amount of economic mobility in the contemporary United States conform to reality. We found that (a) people believe there is more upward mobility than downward mobility; (b) people overestimate the amount of upward mobility and underestimate the amount of downward mobility; (c) poorer individuals believe there is more mobility than richer individuals; and (d) political affiliation influences perceptions of economic mobility, with conservatives believing that the economic system is more dynamic — with more people moving both up and down the income distribution — than liberals do. We discuss how these findings can shed light on the intensity and nature of political debate in the United States on economic inequality and opportunity.
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Is income inequality persistent? Evidence using panel stationarity tests, 1870–2011
Rabiul Islam & Jakob Madsen
Economics Letters, February 2015, Pages 17–19
Abstract:
Using data on inequality for 21 OECD countries over the period 1870-2011 this paper tests the Piketty hypothesis that income inequality is likely to grow in the 21st century. It is shown that the null hypothesis of trend stationarity of inequality cannot be rejected at conventional significance levels, suggesting that shocks to income inequality are likely to be temporary.
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The Engagement Gap: Social Mobility and Extracurricular Participation among American Youth
Kaisa Snellman et al.
ANNALS of the American Academy of Political and Social Science, January 2015, Pages 194-207
Abstract:
Participation in extracurricular activities is associated with positive youth outcomes such as higher education attainment and greater future earnings. We present new analyses of four national longitudinal surveys of American high school students that reveal a sharp increase in the class gap in extracurricular involvement. Since the 1970s, upper-middle-class students have become increasingly active in school clubs and sport teams, while participation among working-class students has veered in the opposite direction. These growing gaps have emerged in the wake of rising income inequality, the introduction of “pay to play” programs, and increasing time and money investments by upper-middle-class parents in children’s development. These trends need to be taken into account in any new initiative to monitor mobility. They also present a challenge to the American ideal of equal opportunity insofar as participation in organized activities shapes patterns of social mobility.
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Maia Güell, José Rodríguez Mora & Christopher Telmer
Review of Economic Studies, forthcoming
Abstract:
We propose a new methodology for measuring intergenerational mobility in economic well-being. Our method is based on the joint distribution of surnames and economic outcomes. It circumvents the need for intergenerational panel data, a long-standing stumbling block for understanding mobility. It does so by using cross-sectional data alongside a calibrated structural model in order to recover the traditional intergenerational elasticity measures. Our main idea is simple. If ‘inheritance’ is important for economic outcomes, then rare surnames should predict economic outcomes in the cross-section. This is because rare surnames are indicative of familial linkages. If the number of rare surnames is small this approach will not work. However, rare surnames are abundant in the highly-skewed nature of surname distributions from most Western societies. We develop a model that articulates this idea and shows that the more important is inheritance, the more informative will be surnames. This result is robust to a variety of different assumptions about fertility and mating. We apply our method using the 2001 census from Catalonia, a large region of Spain. We use educational attainment as a proxy for overall economic well-being. A calibration exercise results in an estimate of the intergenerational correlation of educational attainment of 0.60. We also find evidence suggesting that mobility has decreased among the different generations of the 20th century. A complementary analysis based on sibling correlations confirms our results and provides a robustness check on our method. Our model and our data allow us to examine one possible explanation for the observed decrease in mobility. We find that the degree of assortative mating has increased over time. Overall, we argue that our method has promise because it can tap the vast mines of census data that are available in a heretofore unexploited manner.
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Beyond Education and Fairness: A Labor Market Taxation Model for the Great Gatsby Curve
Lars Lefgren, Frank McIntyre & David Sims
Economic Inquiry, forthcoming
Abstract:
Applied researchers have been drawn to models that attribute the demonstrated cross-country differences in intergenerational income transmission to government failures to invest in the human capital of poor children. To highlight another potential mechanism, the disincentive effects of labor market taxation and redistribution, we present a simple model that can explain cross-country differences in intergenerational mobility and other previously observed empirical patterns. Empirical tests using data on income mobility, tax rates, and public expenditures largely support the model predictions. We conclude that the common presumption that intergenerational mobility largely measures fairness or opportunity, and the resultant policy recommendations, are premature.
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Globalization and welfare spending across 21 transitional economies
Ting Jiang
International Journal of Comparative Sociology, October 2014, Pages 429-453
Abstract:
This article explores the impact of globalization on welfare spending in transitional states. Based on World Bank and International Monetary Fund (IMF) cross-country data sets 1990–2005, I test two leading hypotheses: the first of which predicts a negative relationship between global-economic embeddedness and welfare spending, and the second of which predicts a positive relationship between democratization and welfare spending. Using a cross-section time-series analysis, my findings suggest that the experiences of the transitional economies do not confirm either hypothesis. During the 16-year period of analysis, established globalization factors showed conflicting influence on welfare state arrangements. In addition, my analyses demonstrate a positive correlation between the use of IMF credit and welfare spending in transitional states. This finding contradicts the structural adjustment literature, which largely views policy-based conditional lending as a negative influence on receiving countries’ welfare expenditures.
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Andrew Hodge & Sriram Shankar
Journal of Business & Economic Statistics, forthcoming
Abstract:
This short paper extends well-known threshold models to the ordered response setting. We consider the case where the sample is endogenously split to estimate regime-dependent coefficients for one variable of interest, while keeping the other coefficients and auxiliary parameters constant across the threshold. We use Monte Carlo methods to examine the behaviour of the model. In addition we derive the formulae for the partial effects associated with the model. We apply our threshold model to the relationship between income and self-reported happiness using data drawn from the US General Social Survey. While the findings suggest the presence of a threshold in the income-happiness gradient at approximately $US76,000, no evidence is found in support of a satiation point.