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Monday, February 18, 2013

Who has what

 

When the Economy Falters, Do People Spend or Save? Responses to Resource Scarcity Depend on Childhood Environments

Vladas Griskevicius et al.
Psychological Science, February 2013, Pages 197-205

Abstract:
Just as modern economies undergo periods of boom and bust, human ancestors experienced cycles of abundance and famine. Is the adaptive response when resources become scarce to save for the future or to spend money on immediate gains? Drawing on life-history theory, we propose that people's responses to resource scarcity depend on the harshness of their early-life environment, as reflected by childhood socioeconomic status (SES). In the three experiments reported here, we tested how people from different childhood environments responded to resource scarcity. We found that people who grew up in lower-SES environments were more impulsive, took more risks, and approached temptations more quickly. Conversely, people who grew up in higher-SES environments were less impulsive, took fewer risks, and approached temptations more slowly. Responses similarly diverged according to people's oxidative-stress levels - a urinary biomarker of cumulative stress exposure. Overall, whereas tendencies associated with early-life environments were dormant in benign conditions, they emerged under conditions of economic uncertainty.

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Political Parties and Representation of the Poor in the American States

Elizabeth Rigby & Gerald Wright
American Journal of Political Science, forthcoming

Abstract:
Motivated by recent work suggesting that low-income citizens are virtually ignored in the American policymaking process, this article asks whether a similar bias shapes the policy positions adopted by political parties much earlier in the policymaking process. While the normative hope is that parties serve as linkage institutions enhancing representation of those with fewer resources to organize, the resource-dependent campaign environment in which parties operate provides incentives to appeal to citizens with the greatest resources. Using newly developed measures of state party positions, we examine whether low-income preferences get incorporated in parties' campaign appeals at this early stage in the policymaking process - finding little evidence that they do. This differential responsiveness was most pronounced for Democratic parties in states with greater income inequality; it was least evident for Republicans' social policy platforms. We discuss the implications of these findings for representation in this era of growing economic inequality.

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Legislator Wealth and the Effort to Repeal the Estate Tax

John Griffin & Claudia Anewalt-Remsburg
American Politics Research, forthcoming

Abstract:
We relate legislators' financial assets to their roll call voting on, and cosponsorship of, legislation to permanently repeal or significantly reduce the Estate Tax in the 109th Congress. Even after accounting for legislators' party affiliations, their global opinions about taxation, and their constituents' opinions about the Estate Tax, together with other confounding factors, we find that wealthier legislators were more likely to vote for and cosponsor bills to reduce and repeal the Estate Tax.

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Wallet-Based Redistricting: Evidence for the Concentration of Wealth in Majority Party Districts

Justin Kirkland
State Politics & Policy Quarterly, March 2013, Pages 49-69

Abstract:
This article examines the role of wealth in the redistricting process in state legislative contests. I argue that the decision by state redistricting mapmakers to pursue a "seat-swing" or "protection" strategy involves more than just a choice between where to move partisan voters. Redistricting may also allow parties to consider wealth as an additional resource to be concentrated or dispersed across legislative districts. To test this wealth-based hypothesis, I examine state redistricting plans in California and North Carolina. Logistic regression analyses of census block group exchanges between state legislative districts reveal that income plays a significant role in redistricting decisions.

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The social maximum: American attitudes toward extremely high incomes

Esra Burak
Research in Social Stratification and Mobility, March 2013, Pages 97-114

Abstract:
In light of the dramatic rise in income inequality at the top of the income distribution, this study investigates how the American public is reacting to extremely high incomes. Tolerance for high incomes is measured using survey items about a cap on compensation. The paper aims to answer the following questions: What do people think about compensation caps? What are the determinants of favoring a cap and favoring various levels of caps? Do characteristics of high earners affect these preferences? Why do people favor or oppose a cap on compensation? Analyses show that 61% of Americans support a cap on compensation and that this support for a cap is remarkably stable even when high earners are described as being exceptionally productive or hard-working. Common reasons for favoring a cap include a concern about scarcity of resources, a belief that high incomes are disproportionate to contribution, a commitment to equality and the belief that the legitimate needs of high earners are sated. Common reasons for opposing a cap include seeing the idea of a cap as conflicting with a free market system, a belief that high earners deserve their incomes, and a concern that a cap is a restriction on individual freedom. It is suggested that these attitudes should not be understood as arising mainly or only due to the economic recession. The findings show some support for the proposition that economic individualism, which inoculates modestly high incomes from criticism, may be weakened at the extreme.

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Voter Ideology, Economic Factors, and State and Local Tax Progressivity

John Foster
Public Finance Review, March 2013, Pages 177-202

Abstract:
This study examines the relationship between voter ideology and the distribution of tax burdens across income groups using state and local data, aggregated at the state level, for 1995, 2002, and 2007. I find that average voter liberalism is positively related to subnational tax progressivity. However, the effects are economically insignificant. A state's ethnic demographic context appears to be more important. The ethnic congruence between the poor and the nonpoor is positively related to progressivity and the effects are economically significant. The tension between ethnic groups, measured with an index of residential segregation, is inversely related to progressivity. The effects are larger in magnitude than those of average voter liberalism. It is possible that the ethnic demographic context reflects aspects of voter preferences that are not captured by measures of voter ideology.

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Rawls and the Forgotten Figure of the Most Advantaged: In Defense of Reasonable Envy toward the Superrich

Jeffrey Green
American Political Science Review, forthcoming

Abstract:
This article aims to correct the widespread imbalance in contemporary liberal thought, which makes explicit appeal to the "least advantaged" without parallel attention to the "most advantaged" as a distinct group in need of regulatory attention. Rawls's influential theory of justice is perhaps the paradigmatic instance of this imbalance, but I show how a Rawlsian framework nonetheless provides three justifications for why implementers of liberal justice - above all, legislators - should regulate the economic prospects of a polity's richest citizens: as a heuristic device for ensuring that a system of inequalities not reach a level at which inequalities cease being mutually advantageous, as protection against excessive inequalities threatening civic liberty, and as redress for a liberal society's inability to fully realize fair equality of opportunity with regard to education and politics. Against the objection that such arguments amount to a defense of envy, insofar as they support policies that in certain instances impose economic costs on the most advantaged with negative or neutral economic impact on the rest of society, I attend to Rawls's often overlooked distinction between irrational and reasonable forms of envy, showing that any envy involved in the proposed regulation of the most advantaged falls within this latter category.

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The Behavioral Foundations of Social Politics: Evidence from Surveys and a Laboratory Democracy

Benjamin Barber, Pablo Beramendi & Erik Wibbels
Comparative Political Studies, forthcoming

Abstract:
The dominant theoretical approaches in the comparative political economy of the welfare state provide alternative accounts for why some governments spend more on social policies than others. In the first, poor voters seek to increase their current income by taxing the rich, and social policy serves to redistribute income from the rich to the poor. In the second account, voters seek social insurance against future job loss, and social policy serves as an insurance mechanism rather than a redistributive one. Both of these accounts share the assumption that voters can clearly distinguish between the redistributive and insurance elements of public policy and, therefore, that individual-level characteristics (income, labor market risks) systematically shape preferences over social policy. Our goal is to examine the soundness of that behavioral assumption. We do so with a laboratory experiment that involves economic production, voting on taxation and fiscal transfers. We treat subjects with social policies that vary in their level of redistribution and insurance to examine how this impacts their preferred tax rate. We complement the experimental evidence with data from original survey questions that assess voters' knowledge of the distributive characteristics of different social policies in the U.S. Evidence from both settings suggest only marginal support for behavioral underpinnings of the standard insurance model, particularly as the empirical setting more closely approximates the real world.

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Social comparisons and reference group formation: Some experimental evidence

Ian McDonald et al.
Games and Economic Behavior, May 2013, Pages 75-89

Abstract:
We experimentally investigate reference group formation and the impact of social comparisons in a three-player ultimatum game. The players compete in a real-effort task for the role of the proposer. The role of the responder is randomly allocated to one of the other two participants. The third participant, the non-responder, receives a fixed payment - our treatment variable - and makes no decision. Knowing the size of this payment, the proposer makes a take-it-or-leave-offer to the responder. Most responders appear to ignore the non-responder when the payment the latter receives is low, but not when it is high. As a result, the existence of a non-responder and the payment they receive has a pronounced effect on bargaining outcomes and increases overall rejection rates. We present a simple model in which agents select the members of their reference group strategically to reduce the extent of cognitive dissonance they experience. The model produces results consistent with our experimental findings.

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Occasionally Libertarian: Experimental Evidence of Self-Serving Omission Bias

Andrew Hayashi
Journal of Law, Economics, and Organization, forthcoming

Abstract:
People evaluate outcomes, in part, by how those outcomes came about and who caused them. For example, attitudes about the proper amount of redistributive taxation reflect beliefs about the causal roles played by luck and human agency in creating the pre-tax income distribution. Causal attribution, however, is a process both complicated and subject to bias. I generate individual-level data from a variation on the dictator game in which the participants' initial endowments are manipulated to identify one aspect of how people care about causal attribution. The data are inconsistent with models of preferences defined solely over outcomes and also with a general bias toward inaction. Subjects care independently, but conditionally, about the effects of their own actions and demonstrate a bias toward inaction only when it is in their self-interest.

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Assessing Happiness Inequality in the Welfare State: Self-Reported Happiness and the Rawlsian Difference Principle

Mitch Gainer
Social Indicators Research, forthcoming

Abstract:
The effect of the size of the welfare state on the average happiness level in a nation has often been discussed - but the same effect on happiness inequality has been explored much less. Rooted in divergent philosophical disciplines, utilitarianism and egalitarianism respectively, scholars have discussed the merits of policies as they effect each of these two criteria for justice. John Rawls' difference principle, on the other hand, philosophically justifies a limited trade-off, increasing happiness inequality to benefit the over-all happiness level of the least advantaged. The difference principle - that society should allow inequality insofar as it is to the greatest benefit of the least advantaged - has seldom been discussed empirically in the context of the happiness literature. This paper contributes to the ongoing literature evaluating the welfare state in light of happiness indicators by introducing the difference principle and asking whether the welfare state benefits the least advantaged in society. My empirical analysis shows that self-reported life satisfaction of the least advantaged does not improve from an increase in the size of the welfare state more than the self-reported life satisfaction of the average citizen. In short, the welfare state does not benefit the worst-off in a society in terms of happiness more than the average member.

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Preferences for redistribution: An empirical analysis over 33 countries

Elvire Guillaud
Journal of Economic Inequality, March 2013, Pages 57-78

Abstract:
People's preferences for state intervention in social policies vary. A cross-section analysis on individual-level survey data is conducted here over 33 democracies to highlight the link between the economic position of agents and their specific demand for redistribution. Controlling for a number of factors usually found to affect individual preferences in the literature, this article focuses on the role played by the occupational status of individuals in shaping their preferences. Individual labour market position, as well as family income, is shown to outweigh all other factors shaping preferences for redistribution. The odds of a manager to oppose redistributive policies are increased by 40%, as compared to those of an office clerk, for instance. Moreover, individuals' perception of personal mobility plays an important role: the odds of holding more positive attitudes towards redistribution are up by 32% for people who think they experienced a downward mobility within the last ten years. Evidence is also found for the fact that the political regime may have a long lasting effect on collective preferences: living in former-East Germany doubles the odds of holding positive attitudes towards redistribution, as compared to living in West Germany. Finally, the research presented here identifies which socio-political groups may be formed on the basis of their preferences for redistribution.

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State Power and the Economic Origins of Democracy

Hillel David Soifer
Studies in Comparative International Development, March 2013, Pages 1-22

Abstract:
Recent comparative politics scholarship on regime change has not taken state capacity seriously. Prominent works on the relationship between democracy and economic inequality center on the expectation by economic elites that democratization will lead to economic redistribution. But state capacity is necessary for redistribution, and where extractive capacity is lacking, rational economic elites should not fear that suffrage expansion would lead to effective redistribution, nor should the masses expect to gain economically from democratization. State capacity thus acts as a scope condition for the effect of inequality on regime outcomes. This prediction is confirmed through replication and extension of the analysis in Boix (2003), with the addition of the presence of a regularly implemented national census as a proxy for state capacity. In strong states, the effect of inequality on regime change is confirmed. But where the state is weak, inequality is shown to have no effect on regime outcomes. Thus, including state capacity in theories of regime change calls into question general claims about the "economic origins" of dictatorship and democracy.

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Wage Disparity and Team Performance in the Process of Industry Development: Evidence From Japan's Professional Football League

Eiji Yamamura
Journal of Sports Economics, forthcoming

Abstract:
The changing effects of wage disparity on team performance during the process of industry development are examined using data sourced from the Japanese professional football league. The results show that wage disparity leads to a reduction in team performance during the developing stage but does not influence performance during the developed stage. Unobserved fixed team effects and endogeneity bias were controlled in the study.

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Are Americans Really Less Happy with Their Incomes?

Arie Kapteyn, James Smith & Arthur Van Soest
Review of Income and Wealth, March 2013, Pages 44-65

Abstract:
Recent economic research on international comparisons of subjective well-being suffers from several important biases due to the potential incomparability of response scales within and across countries. In this paper we concentrate on self-reported satisfaction with income in two countries: the Netherlands and the U.S. The comparability problem is addressed by using anchoring vignettes. We find that in the raw data, Americans appear decidedly less satisfied with their income than the Dutch. It turns out however that after response scale adjustment based on vignettes, the distribution of satisfaction in the two countries is essentially identical. In addition, we find that the within-country cross-sectional effect of income on satisfaction - a key parameter in the recent debate in the economic literature - is significantly underestimated, especially in the U.S., when differences in response scales are not taken into account.

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Relative Consumption and Tax Evasion

Laszlo Goerke
Journal of Economic Behavior & Organization, forthcoming

Abstract:
Relative consumption effects or status concerns that feature jealousy (in the sense of Dupor and Liu, AER 2003) boost consumption expenditure. If consumption is financed by labour income, such status considerations increase labour supply and, hence, the tax base. A higher taxable income, in turn, can make tax evasion more attractive. We show for various specifications of preferences that the tax base effect generally dominates. Consequently, relative consumption effects tend to reduce tax evasion. This is true, irrespective of whether tax parameters are exogenous, guarantee a balanced budget or are set optimally.

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Tax progressivity and self-employment: Evidence from Canadian provinces

Ergete Ferede
Small Business Economics, January 2013, Pages 141-153

Abstract:
We examine the effects of personal income tax progressivity - in the sense of rising marginal income tax rate - on self-employment. The impacts of income tax progressivity on self-employment depend on the relative effects of taxing success and the presence of tax evasion opportunities. Empirical estimates using Canadian provincial data for the period 1979-2006 indicate that there is a negative association between income tax progressivity and self-employment. This suggests that the adverse impact of income tax on entrepreneurial risk-taking outweighs the tax evasion opportunities for the self-employed. An important implication of our results is that a reduction in income tax progressivity encourages self-employment. The empirical estimates are robust to the various sensitivity checks.

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Progressive taxes and firm births

Hans Ulrich Bacher & Marius Brülhart
International Tax and Public Finance, February 2013, Pages 129-168

Abstract:
Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. We explore the implications of changes in these parameters for entrepreneurial activity, measured by counts of firm births. The Swiss fiscal system offers sufficient intra-national variation in tax codes to allow us to estimate such effects with considerable precision. We find that high average taxes and complicated tax codes depress firm birth rates, while tax progressivity per se promotes firm births. The latter result supports the existence of an insurance effect from progressive corporate income taxes for risk-averse entrepreneurs. However, implied elasticities with respect to the level and complexity of corporate taxes are an order of magnitude larger than elasticities with respect to the progressivity of tax schedules.

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An Analysis of Equity in Redistribution to the Retired and Children over Recent Decades in the OECD and UK

Jonathan Bradshaw & John Holmes
Journal of Social Policy, January 2013, Pages 39-56

Abstract:
In The Pinch, David Willetts (2010: xv) attracted attention by asking whether ‘the boomers have been guilty of a monumental failure to protect the interest of future generations'. This was just the latest contribution to a long running concern of social policy analysts about horizontal equity and generational fairness. Using OECD data from 1980-2007, in the first part of this paper we show that there is no evidence that social expenditure has been shifting in favour of the retired at the expense of children, except perhaps recently in some Nordic countries. For the UK, we have created a time-series using the published articles since 1977 and the micro data sets since 1994/5 from the annual Office for National Statistics analyses of the Effect of Taxes and Benefits on Household Incomes and used it to analyse trends in the redistributive impact of cash benefits, direct and indirect taxes and services on the retired and households with children and across the income distribution. The analysis shows how the relative support for the retired versus children has changed over time, which elements have contributed to the changes and for which part of the income distribution. There has been a small shift in final income in favour of the retired but it was not the result of changes in taxes, benefits or services in kind but rather a change in the original income distribution in favour of the retired.

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Empirical determinants of in-kind redistribution: Partisan biases and the role of inflation

Zohal Hessami & Silke Uebelmesser
Economics Letters, February 2013, Pages 318-320

Abstract:
There is a dearth of research on the determinants of in-kind redistribution. Using dynamic panel data estimations for 32 OECD countries, we show that the in-kind share of social benefits is lower under left-wing governments. This effect is weakened when left-wing governments respond to inflation by increasing the share of in-kind transfers.

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Happiness Inequality: How Much is Reasonable?

Néstor Gandelman & Rafael Porzecanski
Social Indicators Research, January 2013, Pages 257-269

Abstract:
We compute the Gini indexes for income, happiness and various simulated utility levels. Due to decreasing marginal utility of income, happiness inequality should be lower than income inequality. We find that happiness inequality is about half that of income inequality. To compute the utility levels we need to assume values for a key parameter that can be interpreted as a measure of relative risk aversion. If this coefficient is above one, as many economists believe, then a large part of happiness inequality is not related to pecuniary dimensions of life.

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War, food rationing, and socioeconomic inequality in Germany during the First World War

Matthias Blum
Economic History Review, forthcoming

Abstract:
Germany experienced a devastating period during the First World War due to severely restricted import possibilities and a general shortage of foodstuffs. This study uses the heights of some 4,000 individuals who served during the Second World War to quantify biological living standards from the 1900s to the 1920s, and focuses primarily on socioeconomic inequality during this period. The results suggest that generally the upper social strata, measured by fathers' occupation, exhibited the tallest average height, followed by the middle and lower classes. These socioeconomic differences became more pronounced during the First World War when the rationing system provided a limited food supply. Wealthier individuals were able to purchase additional foodstuffs on black markets. Therefore, children from upper-class families experienced only a small decline in average height compared to their counterparts from the middle and lower social strata.

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Redistribution Spurs Growth by Using a Portfolio Effect on Risky Human Capital

Jan Lorenz, Fabian Paetzel & Frank Schweitzer
PLoS ONE, February 2013

Abstract:
We demonstrate by mathematical analysis and systematic computer simulations that redistribution can lead to sustainable growth in a society. In accordance with economic models of risky human capital, we assume that dynamics of human capital is modeled as a multiplicative stochastic process which, in the long run, leads to the destruction of individual human capital. When agents are linked by fully redistributive taxation the situation might turn to individual growth in the long run. We consider that a government collects a proportion of income and reduces it by a fraction as costs for administration (efficiency losses). The remaining public good is equally redistributed to all agents. Sustainable growth is induced by redistribution despite the losses from the random growth process and despite administrative costs. Growth results from a portfolio effect. The findings are verified for three different tax schemes: proportional tax, taking proportionally more from the rich, and proportionally more from the poor. We discuss which of these tax schemes performs better with respect to maximize growth under a fixed rate of administrative costs, and the governmental income. This leads us to general conclusions about governmental decisions, the relation to public good games with free riding, and the function of taxation in a risk-taking society.

By KEVIN LEWIS | 09:00:00 AM