Findings

Spreading the Wealth

Kevin Lewis

March 26, 2010

Markets, Religion, Community Size, and the Evolution of Fairness and Punishment

Joseph Henrich et al.
Science, 19 March 2010, Pages 1480-1484

Abstract:
Large-scale societies in which strangers regularly engage in mutually beneficial transactions are puzzling. The evolutionary mechanisms associated with kinship and reciprocity, which underpin much of primate sociality, do not readily extend to large unrelated groups. Theory suggests that the evolution of such societies may have required norms and institutions that sustain fairness in ephemeral exchanges. If that is true, then engagement in larger-scale institutions, such as markets and world religions, should be associated with greater fairness, and larger communities should punish unfairness more. Using three behavioral experiments administered across 15 diverse populations, we show that market integration (measured as the percentage of purchased calories) positively covaries with fairness while community size positively covaries with punishment. Participation in a world religion is associated with fairness, although not across all measures. These results suggest that modern prosociality is not solely the product of an innate psychology, but also reflects norms and institutions that have emerged over the course of human history.

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Piety and Redistributive Preferences in the Muslim World

Thomas Pepinsky & Bozena Welborne
Political Research Quarterly, forthcoming

Abstract:
This article tests two competing theories of the relationship between piety and redistributive preferences in the Muslim world. The first, drawn from the new political economy of religion, holds that more pious individuals of any faith should oppose redistributive economic policies. The second, drawn from Islamic scripture, holds that pious Muslims should favor more redistributive economic policies. Employing survey data from twenty-five countries, the authors find that there is no clear relationship between piety and redistributive preferences among Muslims. The authors find that more pious Muslims are less likely to favor government efforts to eliminate income inequality, but they find only inconsistent evidence that more pious Muslims support governments taking responsibility for the well-being of the poor. The findings offer little evidence to suggest that either scriptural or organizational factors unique to Islam create distinct economic policy preferences.

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Who Wins and Who Loses? Public Transfer Accounts for US Generations Born 1850 to 2090

Antoine Bommier, Ronald Lee, Tim Miller & Stéphane Zuber
Population and Development Review, March 2010, Pages 1-26

Abstract:
Public transfer programs in industrial countries are thought to benefit the elderly through pension and health care programs at the expense of the young and future generations. This intergenerational picture changes, however, if public education is also considered as a transfer program. We calculate the net present value at birth of benefits received minus taxes paid for US generations born 1850 to 2090. Surprisingly, all generations 1950 to 2050 are net gainers, while many current elderly are net losers. Windfall gains from starting Social Security and Medicare partially offset windfall losses from starting public education, roughly consistent with the arguments of Becker and Murphy.

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Pastoralism and Wealth Inequality: Revisiting an Old Question

Monique Borgerhoff Mulder, Ila Fazzio, William Irons, Richard McElreath, Samuel Bowles, Adrian Bell, Tom Hertz & Leela Hazzah
Current Anthropology, February 2010, Pages 35-48

Abstract:
Pastoralist societies are often portrayed as economically egalitarian, reflecting the volatile nature of livestock herds and the existence of multiple institutions that allow for the redistribution of wealth as a form of insurance. Motivated by an interest in the role of intergenerational transmission in structuring persistent inequality, we examine the extent of intergenerational transmission of material wealth (four measures) and embodied wealth (one measure) for four pastoral populations from different parts of the world (East Africa, West Africa, and southwest Asia). We find substantial levels of intergenerational transmission and marked economic inequality. We argue that the high correspondence between the material wealth of parents and offspring reflects the importance of the family in the transmission of wealth through bequests, positive assortment by wealth in the domains of marriage and herd management, and positive returns to scale as might occur when raising or defending large herds. We conclude that the analysis of intergenerational transmission provides new insights into the much‐debated extent of egalitarianism among pastoralists.

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Government size, composition, volatility and economic growth

António Afonso & Davide Furceri
European Journal of Political Economy, forthcoming

Abstract:
This paper analyses the effects in terms of size and volatility of government revenue and spending on growth in OECD and EU countries. The results of the paper suggest that both variables are detrimental to growth. In particular, looking more closely at the effect of each component of government revenue and spending, the results point out that i) indirect taxes (size and volatility); ii) social contributions (size and volatility); iii) government consumption (size and volatility); iv) subsidies (size); and v) government investment (volatility) have a sizeable, negative and statistically significant effect on growth.

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The Dynamics of Relief Spending and the Private Urban Labor Market During the New Deal

Todd Neumann, Price Fishback & Shawn Kantor
Journal of Economic History, March 2010, Pages 195-220

Abstract:
We examine the dynamic relationships between relief spending and local private labor markets using a panel data set of relief, private employment, and private earnings. Positive shocks to relief during the First New Deal were followed by increased private employment and earnings, consistent with demand stimulus in that period. On the other hand, increases in work relief spending during the Second New Deal were followed by decreased employment and increased earnings, consistent with crowding out. The timing of spending is consistent with claims that the Roosevelt administration used relief spending to sway elections.

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Should Happiness-Maximization be the Goal of Government?

Grant Duncan
Journal of Happiness Studies, April 2010, Pages 163-178

Abstract:
Recent social surveys of happiness (subjective well-being) have given a new stimulus to utilitarian political theory by providing a statistically reliable measure of the ‘happiness' of individuals that can then be correlated with other variables. One general finding is that greater happiness does not correlate strongly with increased wealth, beyond modest levels, and this has led to calls for governments to shift priorities away from economic growth and towards other social values. This paper notes how the conclusions of this research help to address some of the traditional objections to utilitarianism. The question of how happiness research findings can be used to set happiness-maximization goals for public policy needs careful examination, as the translation from research to policy is not always straightforward. Some empirical and ethical objections to this ‘new utilitarianism' are raised. The complicating factors of public expectations of, and trust in, governments pose obstacles to any proposal that happiness research may lead to changes in public policy and hence to ‘happier' populations.

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Examining the Hayek-Friedman hypothesis on economic and political freedom

Robert Lawson & J.R. Clark
Journal of Economic Behavior & Organization, forthcoming

Abstract:
This paper examines empirically the hypothesis made famous by Nobel Laureates Friedrich A. Hayek and Milton Friedman that societies with high levels of political freedom must also have high levels of economic freedom. In our judgment, the Hayek-Friedman hypothesis holds up fairly well to historical scrutiny. Using data on economic and political freedom for a sample of up to 123 nations back as far as 1970, we find relatively few instances of societies combining relatively high political freedom without relatively high levels of economic freedom. In addition, we find that these cases are diminishing over time. Finally, we examine several cases of countries on different economic and political freedom journeys.

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Welfare improving distributionally neutral tax reforms

Nathalie Mathieu-Bolh
Economic Modelling, forthcoming

Abstract:
In a new model with incomplete markets, I quantitatively determine tax reforms that are welfare improving, distributionally neutral, and leave the budget balance unchanged in the long run. I consider a new reform. I eliminate capital income taxation and replace it with progressive consumption taxation, consisting of taxing necessities and luxuries at different rates. I compare steady states under various tax regimes. I find that progressive rather than uniform consumption taxation generates higher welfare gains in the long run and during the transition to the steady state. While this type of reform achieves redistribution neutrality only in the long run, it generates welfare gains for the whole population during the transition. These results stay robust when non-homothetic preferences are considered and progressivity in consumption taxation is achieved by subsidizing consumption of the poor. With respect to long term objectives, the choice of a more progressive consumption or labor-income tax system depends on the modelization of preferences. During the transition, a tax reform involving more progressive labor-income taxation generates smaller redistribution effects than any consumption tax reform.

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Capital account liberalisation and poverty: How close is the link?

Philip Arestis & Asena Caner
Cambridge Journal of Economics, March 2010, Pages 295-323

Abstract:
The literature on the theoretical and empirical aspects of the relationship between finance and economic growth is both substantial and extensive. The same cannot be said on the relationship between financial development and poverty reduction-an equally important aspect. In this study, we visit the theoretical arguments and conduct an empirical analysis of the relationship between the capital account dimension of financial liberalisation and poverty for developing countries for the period 1985-2005. In particular, we employ the ‘system GMM' technique to test whether capital account liberalisation has helped alleviate poverty, and also whether the extent to which capital account liberalisation affects poverty depends on the quality of institutions. We also use OLS and IV techniques to verify our findings. Our findings indicate that there is no statistically significant relationship between the degree of capital account liberalisation during the period and the poverty rate. Developing countries with higher institutional quality have lower poverty rates, but the effect has low statistical significance. A higher degree of capital account liberalisation is associated with a lower income share for the poor.

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Multilateral trade and export-led growth in the world economy: Some post-war evidence

Kenneth Chan & Vinh Dang
Empirical Economics, June 2010, Pages 689-703

Abstract:
In this paper, we address an empirical question: is there evidence to substantiate the assumption that the post-war liberalization of world trade has actually led to a significant increase in the world GDP? In our attempt to answer that question, time series data in the Penn World Table 6.1 are aggregated across countries to obtain a measure of world trade and output, and the total number of GATT/WTO member countries is employed as an explanatory variable to account for the impact of multilateral trade agreements, such as the Kennedy Round, Tokyo Round, and the Uruguay Round, on the trade-growth nexus. We then examine the relationship between world trade and the post-war GDP per worker across the world through the multivariate cointegration and error correction modeling and the Granger causality test. The results suggest that, at the global level, the post-war liberalization of multilateral trade has promoted both GDP and trade activities. There is also evidence that supports the export-led growth hypothesis in the world economy.

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Sins of the Sons of Samuelson: Vision, Pedagogy, and the Zig-Zag Windings of Complex Dynamics

David Colander & Casey Rothschild
Journal of Economic Behavior & Organization, forthcoming

Abstract:
The standard economics text is centered on a vision of a naturally self-regulated, dynamically stable system with a unique global attractor. This paper discusses how we got there and how recent developments in the study of dynamical systems allow us to go beyond that. It traces the evolution of the teaching of economics from Alfred Marshall, who built his supply-and-demand framework within a complexity vision of the economy. It suggests that that complexity vision was lost as economists formalized the supply-demand framework and extended it to the entire economy. This paper argues that the current textbook presentation of economics should not and cannot serve as the only intellectual frame we provide to our students.

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Voting with their feet: Relative economic conditions and state migration patterns

Alicia Sassera
Regional Science and Urban Economics, forthcoming

Abstract:
Over the past decade, state and local policymakers and business leaders across the U.S. have expressed concern regarding the ability to attract and retain skilled workers, given the economic climate of their states compared with other parts of the nation. Examining the factors underlying state-level migration trends is important to determine what role, if any, public policy might play in addressing their potential impact on local labor supply. Using data from the Internal Revenue Service for each of the 48 states in the continental United States from 1977 through 2006, this paper examines the role of three economic factors - namely labor market conditions, per capita incomes, and housing affordability - in determining domestic state-to-state migration flows. Estimates from a logistic model of out-migration show that while all three measures of relative economic conditions are significant determinants of migration, the magnitude of their impact varies and has changed considerably over time. For example, the importance of per capita income as a determining factor has fallen considerably since the late 1970s, while that of housing affordability has risen. Interestingly, the role of labor market conditions - while significant throughout the entire 30-year period - was most prominent in the late 1980s and early 1990s. Estimates from the model are used to forecast migration for 2009 for selected states. The results from this exercise are surprisingly accurate when compared to actual state migration patterns for that year.

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Is it even worth it? The effect of loss prospects in the outcome distribution of a public goods dilemma

Matthew McCarter, Kevin Rockmann & Gregory Northcraft
Organizational Behavior and Human Decision Processes, January 2010, Pages 1-12

Abstract:
Contributions to public goods are premised on the expectation that the collective will realize benefit in excess of the value of required contributions. However, past research has focused on public goods of fixed and known value, for which the added value of the produced public good is obvious. Research has largely ignored public goods whose eventual value is uncertain at the time contribution decisions are made. Two studies explored the effects of outcome variance on individuals' contributions to a public good and their reasons for contributing. Contributions were negatively affected by loss prospects in the distribution of possible outcomes. Further, loss prospects directly discouraged contributions because of loss aversion, and indirectly discouraged contributions by fueling fears that others would not contribute. The negative effects of loss prospects were stronger when social uncertainty was low. Implications for social dilemma research and the effective management of collective action are discussed.

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Worse But Equal: The Influence of Social Categories on Resource Allocations

Stephen Garcia, Max Bazerman, Dale Miller & Shirli Kopelman
University of Michigan Working Paper, July 2009

Abstract:
This paper explores the influence of social categories on the perceived trade-off between relatively bad but equal distribution of resources between two parties and profit maximizing, yet asymmetric payoffs. Study 1 and 2 showed that people prefer to maximize profits when interacting within their social category, but chose suboptimal individual and joint profits when interacting across social categories. Study 3 demonstrated that outside observers, who were not members of the focal social categories, also were less likely to maximize profits when resources were distributed across social category lines. Study 4 showed that the transaction utility of maximizing profits required greater compensation when resources were distributed across, in contrast to within social categories. We discuss the ethical implications of these decision making biases in the context of organizations.


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