Findings

To each his own

Kevin Lewis

March 31, 2017

The Political Implications of American Concerns About Economic Inequality
Graham Wright
Political Behavior, forthcoming

Abstract:
This article presents a national measure of Americans’ level of concern about economic inequality from 1966 to 2015, and analyzes the relationship between this construct and public support for government intervention in the economy. Current research argues that concerns about economic inequality are associated with a desire for increased government action, but this relationship has only been formally tested using cross-sectional analyses. I first use a form of dynamic factor analysis to develop a measure of national concern over time. Using an error correction model I then show that an increase in national concern about economic inequality does not lead to a subsequent increase in support for government intervention in the economy. Instead there is some evidence that, once confounding factors are accounted for, an increase in concern could lead to reduced support for government intervention.

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Family Background and Earnings Inequality among College Graduates
Dirk Witteveen & Paul Attewell
Social Forces, forthcoming

Abstract:
Stratification researchers have reported that the relationship between family background and socio-economic outcomes drops to near zero for individuals who have a baccalaureate degree, leading one scholar to conclude that “This … provides a new answer to the old question about overcoming disadvantaged origins. A college degree can do it.” We present contrary evidence from two nationally representative samples of college graduates: the Baccalaureate & Beyond Longitudinal Study of 1993 and 2008. There are substantial income differences between graduates from different family backgrounds that can be observed both four and 10 years after graduation. These class-related gaps persist after controlling for college selectivity, major, and academic performance. Further analyses also indicate that these disadvantages in the labor market can be partially explained by inequalities established within occupational niches. We develop the implications of this for theories about the educational dimensions of intergenerational mobility.

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The Influence of Inequality on Welfare Generosity: Evidence from the US States
Lyle Scruggs & Thomas Hayes
Politics & Society, March 2017, Pages 35-66

Abstract:
This article examines the relationship between income concentration and policy outputs that determine the generosity of two major state-level safety net programs: unemployment insurance and cash social assistance. Using a difference in differences framework, it tests the degree to which the top 1 percent share is associated with benefit replacement rates for these programs during the period 1978–2010. The results suggest that higher state income inequality lowers those states’ welfare benefits significantly in ways consistent with a “plutocracy” hypothesis that has been suggested in work by scholars such as Bartels, Bonica, Gilens, and Page. The results are robust to controls for several alternative explanations for benefit generosity, including citizen ideology, party control of government, fiscal pressure on programs, state racial heterogeneity, and public opinion liberalism. The results thus support the notion that growing income concentration at the very top undermines social protection policies.

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Does Inequality Constrain the Power to Tax? Evidence from the OECD
Rabiul Islam, Jakob Madsen & Hristos Doucouliagos
European Journal of Political Economy, forthcoming

Abstract:
We investigate the consequences of income inequality on the income tax-to-GDP ratio for 21 OECD countries over a long time period spanning 1870 to 2011. We use several identification strategies, including using unionization as a new IV for inequality. In contrast to predictions from median voter models, we find that rising inequality significantly depresses the income tax ratio. This finding is robust to alternative measures of inequality, treatment for endogeneity, and model specification. The tax ratio increases with the degree of democracy and openness and decreases with urbanization. Inequality also reduces the indirect tax ratio, alters the tax structure, and moderates government spending as a share of GDP.

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Plastic and immobile: Unequal intergenerational mobility by genetic sensitivity score within sibling pairs
Emily Rauscher
Social Science Research, forthcoming

Abstract:
Contrary to traditional biological arguments, the differential susceptibility model suggests genotype may moderate rather than mediate parent-child economic similarity. Using family fixed effects models of Add Health sibling data, I investigate the relationship between an index of sensitive genotypes and intergenerational mobility. Full, same sex sibling comparisons hold constant parental characteristics and address the non-random distribution of genotype that reduces internal validity in nationally representative samples. Across multiple measures of young adult financial standing, those with more copies of sensitive genotypes achieve lower economic outcomes than their sibling if they are from a low income context but fare better from a high income context. This genetic sensitivity to parental income entails lower intergenerational mobility. Results support the differential susceptibility model and contradict simplistic genetic explanations for intergenerational inequality, suggesting sensitive genotypes are not inherently positive or negative but rather increase dependence on parental income and reduce mobility.

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Inequality, ethnic diversity, and redistribution
Christian Houle
Journal of Economic Inequality, March 2017, Pages 1–23

Abstract:
Seminal political economy models from Meltzer and Richard, among others, theorize that, in democracies, more inequality should lead to more redistribution. Most country-level empirical studies find weak support for this prediction. This paper makes two contributions to this debate. First, I identify some of the key shortcomings of previous tests and provide a new empirical analysis that corrects for these limitations. Using a dataset covering 89 developed and developing democracies, I find that inequality is associated with more redistribution. Second, I show that inequality’s effect on redistribution is weaker in democracies in which the poor – defined as the people with income below the median – are divided along ethnic lines than in those in which they are ethnically unified. Taken together, these results suggest that although economic inequality increases redistribution, the magnitude of the relationship is conditional on how inequality interacts with other social cleavages, such as ethnicity.

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Grand Advantage: Family Wealth and Grandchildren’s Educational Achievement in Sweden
Martin Hällsten & Fabian Pfeffer
American Sociological Review, April 2017, Pages 328-360

Abstract:
We study the role of family wealth for children’s educational achievement using novel Swedish register data. In particular, we focus on the relationship between grandparents’ wealth and their grandchildren’s educational achievement. Doing so allows us to reliably establish the independent role of wealth in contributing to long-term inequalities in opportunity. We use regression models with extensive controls to account for observed socioeconomic characteristics of families, cousin fixed effects to net out potentially unobserved grandparent effects, and marginal structural models to account for endogenous selection. We find substantial associations between grandparents’ wealth and their grandchildren’s grade point averages (GPA) in the 9th grade that are only partly mediated by parents’ socioeconomic characteristics and wealth. Our findings indicate that family wealth inequality — even in a comparatively egalitarian context like Sweden — has profound consequences for the distribution of opportunity across multiple generations. We posit that our estimates of the long-term consequences of wealth inequality may be conservative for nations other than Sweden, like the United States, where family wealth — in addition to its insurance and normative functions — allows the direct purchase of educational quality and access.

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Short-Term and Long-Term Educational Mobility of Families: A Two-Sex Approach
Xi Song & Robert Mare
Demography, February 2017, Pages 145–173

Abstract:
We use a multigenerational perspective to investigate how families reproduce and pass their educational advantages to succeeding generations. Unlike traditional mobility studies that have typically focused on one-sex influences from fathers to sons, we rely on a two-sex approach that accounts for interactions between males and females — the process in which males and females mate and have children with those of similar educational statuses and jointly determine the educational status attainment of their offspring. Using data from the Panel Study of Income Dynamics, we approach this issue from both a short-term and a long-term perspective. For the short term, grandparents’ educational attainments have a direct association with grandchildren’s education as well as an indirect association that is mediated by parents’ education and demographic behaviors. For the long term, initial educational advantages of families may benefit as many as three subsequent generations, but such advantages are later offset by the lower fertility of highly educated persons. Yet, all families eventually achieve the same educational distribution of descendants because of intermarriages between families of high- and low-education origin.

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The Creation of Effective States in the OECD since 1870: The Role of Inequality
Jakob Madsen, Cong Wang & Bodo Steiner
European Journal of Political Economy, forthcoming

Abstract:
Research shows that state capacity is crucial for economic development, yet the impact of inequality on state capacity is not well understood. This paper examines the impact of income inequality on three key dimensions of state capacity, namely legal, fiscal and collective capacity using annual data for a core of 21 OECD countries over the period 1870–2013. We find that the marked reduction in inequality over most of the last century starting from 1916 was pivotal to the significant improvements in legal, fiscal and collective capacity in the OECD countries over the same period.

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Multidimensional Inequality Across Three Developed Countries
Nicholas Rohde & Ross Guest
Review of Income and Wealth, forthcoming

Abstract:
This paper produces comparable estimates of multidimensional inequality for the U.S., Germany, and Australia. Two alternative approaches with differing interpretations are employed. The first method projects all facets of welfare onto a single variable which is then analyzed using standard univariate techniques. The second approach establishes equivalent-income distributions that would lead to an equalization of welfare, such that the difference between this counterfactual and the true income distribution can be measured. This difference is then interpreted as the degree of income redistribution required to offset welfare inequality. Using data on permanent incomes, health scores, years of education, and leisure times, we observe much higher levels of inequality in the U.S. than in Germany or Australia. Our results are highly statistically significant and hold over a large variety of weighting specifications.

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Political and Economic Inequities and the Shaping of Institutions and Redistribution
Alberto Chong & Mark Gradstein
Southern Economic Journal, forthcoming

Abstract:
This article studies the joint effect of political and economic inequalities on redistributive taxation and institutional quality. The theoretical model suggests that income inequality, coupled with political bias in favor of the rich, decreases redistribution and lowers institutional quality. The effect of the former is to increase productive investment, and the effect of the latter is to decrease it — with resulting ambiguous implications for economic growth. Testing these predictions empirically in a panel of countries, we find that inequality has a negative effect on both institutional quality and redistribution.

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Why Don’t Voters ‘Put the Gini Back in the Bottle?’ Inequality and Economic Preferences for Redistribution
Brandon Pecoraro
European Economic Review, April 2017, Pages 152–172

Abstract:
The classic democratic theory of redistribution claims that an increase in market income inequality causes an increase in the size of government through majority voter support for an offsetting expansion of redistribution. I argue that the predicted inequality-redistribution relationship can break down when voters face uninsurable idiosyncratic risk with respect to future labor income and a timing differential between tax collections and government outlays. This is formalized using an incomplete market heterogeneous-agent DSGE model with majority voting and ‘time-to-build’ policy, which suggests the collective demand for redistribution will not necessarily increase with growing income or wealth inequality. This result implies that even with equal political power among voters, democracies do not have a systematic mechanism to offset rising inequality as contrary to popular belief.

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The Decline in Intergenerational Mobility After 1980
Jonathan Davis & Bhash Mazumder
Federal Reserve Working Paper, March 2017

Abstract:
We demonstrate that intergenerational mobility declined sharply for cohorts born between 1957 and 1964 compared to those born between 1942 and 1953. The former entered the labor market largely after the large rise in inequality that occurred around 1980 while the latter entered the labor market before this inflection point. We show that the rank-rank slope rose from 0.27 to 0.4 and the IGE rose from 0.35 to 0.51. The share of children whose income exceeds that of their parents fell by about 3 percentage points. These findings suggest that relative mobility fell by substantially more than absolute mobility.

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How Fat is the Top Tail of the Wealth Distribution?
Philip Vermeulen
Review of Income and Wealth, forthcoming

Abstract:
Differential unit non-response in household wealth surveys biases estimates of top tail wealth shares downward. Using Monte Carlo evidence, I show that adding only a few extreme observations to wealth surveys is sufficient to remove the downward bias. Combining extreme wealth observations from Forbes World's billionaires with the Survey of Consumer Finances, the Wealth and Assets Survey, and the Household Finance and Consumption Survey, I provide new improved estimates of top tail wealth in the United States, the United Kingdom, and nine euro area countries. These new estimates indicate significantly higher top wealth shares than those calculated from the wealth surveys alone.


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