Getting Your Share
Interpreting Trends in Intergenerational Mobility
Martin Nybom & Jan Stuhler
Journal of Political Economy, forthcoming
Abstract:
Studying a dynamic model of intergenerational transmission, we show that past events affect contemporaneous trends in intergenerational mobility. Structural changes may generate long-lasting mobility trends that can be non-monotonic, and declining mobility may reflect past gains rather than a recent deterioration of equality of opportunity. We provide two applications. We first show that changes in the parent generation have partially offset the effect of rising skill premia on income mobility in the US. We then show that a Swedish school reform reduced the transmission of inequalities in the directly affected generation, but increased their persistence in the next.
Evaluating the Success of the War on Poverty since 1963 Using an Absolute Full-Income Poverty Measure
Richard Burkhauser et al.
Journal of Political Economy, January 2024, Pages 1-47
Abstract:
We evaluate progress in the War on Poverty as President Lyndon B. Johnson defined it, which established a 20% baseline poverty rate and adopted an absolute standard. While the official poverty rate fell from 19.5% in 1963 to 10.5% in 2019, our absolute full-income poverty measure -- which uses a fuller income measure and updates thresholds only for inflation -- fell from 19.5% to 1.6%. However, we also show that relative poverty reductions have been modest. Additionally, government dependence increased over this time, with the share of working-age adults receiving under half their income from market sources more than doubling.
Rethinking the Welfare State
Nezih Guner, Remzi Kaygusuz & Gustavo Ventura
Econometrica, November 2023, Pages 2261-2294
Abstract:
The United States spends significant amounts on non-medical transfers for its working-age population in a wide range of programs that support low- and middle-income households. How valuable are these programs for U.S. households? Are there simpler, welfare-improving ways to transfer resources that are supported by a majority? What are the macroeconomic effects of such alternatives? We answer these questions in an equilibrium, life-cycle model with single and married households who face idiosyncratic productivity risk, in the presence of costly children and potential skill losses of females associated with non-participation. Our findings show that a potential revenue-neutral elimination of the welfare state generates large welfare losses in the aggregate, although most households support the move as losses are concentrated among a small group. We find that a Universal Basic Income program does not improve upon the current system. If, instead, per-person transfers are implemented alongside a proportional tax, a Negative Income Tax experiment, it becomes feasible to improve upon the current system. Providing per-person transfers to all households is costly, and reducing tax distortions helps to provide for resources to expand redistribution.
Does support for redistribution mean what we think it means?
Yotam Margalit & Shir Raviv
Political Science Research and Methods, forthcoming
Abstract:
When surveyed, clear majorities express concern about inequality and view the government as responsible for addressing it. Scholars often interpret this view as popular support for redistribution. We question this interpretation, contending that many people have little grasp of what reducing inequality actually entails, and that this disconnect masks important variation in preferences over concrete policies. Using original survey and experimental US data, we provide systematic evidence in line with these conjectures. Furthermore, when asked about more concrete redistributive measures, support for government action changes significantly and aligns more closely with people's self-interest. These findings have implications for how egalitarian policies can be effectively communicated to the public, as well as methodological implications for the study of preferences on redistribution.
The Economic Impact of Heritable Physical Traits: Hot Parents, Rich Kid?
Daniel Hamermesh & Anwen Zhang
NBER Working Paper, January 2024
Abstract:
Since the mapping of the human genome in 2004, biologists have demonstrated genetic links to the expression of several income-enhancing physical traits. To illustrate how heredity produces intergenerational economic effects, this study uses one trait, beauty, to infer the extent to which parents’ physical characteristics transmit inequality across generations. Analyses of a large-scale longitudinal dataset in the U.S., and a much smaller dataset of Chinese parents and children, show that a one standard-deviation increase in parents’ looks is associated with a 0.4 standard-deviation increase in their child’s looks. A large data set of U.S. siblings shows a correlation of their beauty consistent with the same expression of their genetic similarity, as does a small sample of billionaire siblings. Coupling these estimates with parameter estimates from the literatures describing the impact of beauty on earnings and the intergenerational elasticity of income suggests that one standard-deviation difference in parents’ looks generates a 0.06 standard-deviation difference in their adult child’s earnings, which amounts to additional annual earnings in the U.S. of about $2300.
Tax Evasion and Capital Taxation
Shahar Rotberg & Joseph Steinberg
Journal of Political Economy, forthcoming
Abstract:
Wealth inequality has prompted calls for higher taxes on capital income and wealth, but also concerns that rich households would respond by concealing their assets offshore. We use a general equilibrium model to study how taxing capital more heavily would affect offshore tax evasion and how this would affect the broader economy. Without evasion, tax revenue could be increased dramatically, inequality could be reduced, and widespread welfare gains could be achieved. After accounting for evasion, however, tax revenue would rise marginally or even fall, inequality would increase, and widespread welfare losses would result.
Intergenerational Mobility and Credit
Carter Braxton et al.
NBER Working Paper, January 2024
Abstract:
We combine the Decennial Census, credit reports, and administrative earnings to create the first panel dataset linking parent’s credit access to the labor market outcomes of children in the U.S. We find that a 10% increase in parent’s unused revolving credit during their children’s adolescence (13 to 18 years old) is associated with 0.28% to 0.37% greater labor earnings of their children during early adulthood (25 to 30 years old). Using these empirical elasticities, we estimate a dynastic, defaultable debt model to examine how the democratization of credit since the 1970s -- modeled as both greater credit limits and more lenient bankruptcy -- affected intergenerational mobility. Surprisingly, we find that the democratization of credit led to less intergenerational mobility and greater inequality. Two offsetting forces underlie this result: (1) greater credit limits raise mobility by facilitating borrowing and investment among low-income households; (2) however, more lenient bankruptcy policy lowers mobility since low-income households dissave, hit their constraints more often, and reduce investments in their children. Quantitatively, the democratization of credit is dominated by more lenient bankruptcy policy and so mobility declines between the 1970s and 2000s.
The political economy of inequality, mobility and redistribution
Ignacio Campomanes
Journal of Macroeconomics, March 2024
Abstract:
How does the interaction between inequality and social mobility affect the choice of fiscal policy? I analyze this question in a model of democratic politics with imperfect tax enforcement, where the ability of individuals to evade taxes limits the amount of redistribution in the economy. Social mobility creates an insurance motive that increases voluntary compliance, favoring the tax enforcement process. In such an environment, redistributive pressures brought about by an increase in inequality are only implementable in highly mobile societies. On the contrary, when mobility is low, higher inequality reduces tax rates and does not translate into higher redistribution. Descriptive evidence based on a sample of 71 countries for the period 1980-2015 shows correlations among inequality, mobility and redistribution in line with the predictions of the model.
Monopsony Amplifies Distortions from Progressive Taxes
David Berger et al.
NBER Working Paper, December 2023
Abstract:
In this short paper we show that progressive income taxes distort hiring and wages when firms have labor market power. From a firm’s perspective, raising pre-tax wages increases employment by less when taxes are progressive as less of the pre-tax wage is paid to workers. Understanding this when setting wages leads to lower wages and employment at all firms. When firms differ in productivity, progressive taxes also distort the allocation of labor across firms. We characterize this novel monopsony cost of progressivity in a simple monopsony economy and derive efficiency wedges that depend on progressivity. A simple quantification of these wedges points to the possibility that the monopsony cost may be of similar magnitudes to redistribution and insurance benefits.
Tax Progressivity and Output in the US
João Tovar Jalles & Georgios Karras
Economics Letters, February 2024
Abstract:
Compared to the economic effects of tax rates, those of tax progressivity have benefited much less from the recent Renaissance in fiscal research. In this letter, we use a novel data set on US tax progressivity constructed by Borella et al. (2022) to estimate its output effects since 1970. Our results show that tax progressivity reduces the economy's growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust to various specifications and to controlling for changes in the tax rate.
Income Mobility, Austerity and Liberalization: Evidence from Alberta's Reforms in the 1990s
Justin Callais, Vincent Geloso & Alicia Plemmons
George Mason University Working Paper, January 2024
Abstract:
In 1992, Ralph Klein became premier of Alberta. Upon taking office and securing re-election, he initiated major economic reforms and draconian austerity measures that were accompanied by important deregulation. Eventually, corporate taxes were slashed and a flat income tax replaced the provincial progressive income tax. Combined, these reforms pushed Alberta from the 49th position in the ranking of economic freedom of all states and provinces in North America in 1990 to the 1st position by 2009. Did these reforms benefit those at the bottom of the income distribution? To answer this question, we use a wide array of income mobility measures in the framework of synthetic control methods. We test whether people in the bottom decile of the income distribution experienced absolute (i.e., income increases) and/or relative (i.e., decile jumps) mobility. We find that the reforms were a major boost to all measures of income mobility.
Matriline versus Patriline: Social Mobility in England, 1754-2023
Gregory Clark & Neil Cummins
London School of Economics Working Paper, January 2024
Abstract:
If social outcomes have social causation, mothers and fathers in different societies will have different effects on child outcomes. Social mobility rates on the patriline will differ from that on the matriline. From an extensive family lineage of 426,552 persons in England 1650-2023 we estimate the influence of mothers versus fathers on social outcomes 1754-2023. Mothers’ and fathers’ education and social status are equally predictive of most child social outcomes across the entire period, even for the patriarchical society of eighteenth-nineteenth century England. Only for wealth was there a much stronger influence of the patriline.