Wealth Taxation in the United States
NBER Working Paper, December 2019
The paper analyzes the fiscal effects of a Swiss-type tax on household wealth, with a $120,000 exemption and marginal tax rates running from 0.05 to 0.3 percent on $2,400,000 or more of wealth. It also considers a wealth tax proposed by Senator Elizabeth Warren with a $50,000,000 exemption, a two percent tax on wealth above that and a one percent surcharge on wealth above $1,000,000,000. Based on the 2016 Survey of Consumer Finances, the Swiss tax would yield $189.3 billion and the Warren tax $303.4 billion. Only 0.07 percent of households would pay the Warren tax, compared to 44.3 percent for the Swiss tax. The Swiss tax would have a very small effect on income inequality, lowering the post-tax Gini coefficient by 0.004 Gini points. The effect of the Swiss tax and Warren tax on wealth inequality is miniscule, lowering the Gini coefficient by at most 0.0005 Gini points.
Bureaucratic Capacity and Class Voting: Evidence from Across the World and the United States
Kimuli Kasara & Pavithra Suryanarayan
Journal of Politics, forthcoming
Why do the rich and poor support different parties in some places? We argue that voting along class lines is more likely to occur where states can tax the income and assets of the wealthy. In low bureaucratic capacity states, the rich are less likely to participate in electoral politics because they have less to fear from redistributive policy. When wealthy citizens abstain from voting, politicians face a more impoverished electorate. Because politicians cannot credibly campaign on anti-tax platforms, they are less likely to emphasize redistribution and partisan preferences are less likely to diverge across income groups. Using cross-national survey data, we show there is more class voting in countries with greater bureaucratic capacity. We also show that class voting and fiscal capacity were correlated in the United States in the mid-1930s when state-level revenue collection and party systems were less dependent on national economic policy.
Chasing Disparity: Economic Development Incentives and Income Inequality in the U.S. States
State Politics & Policy Quarterly, forthcoming
Political scientists and policy scholars have traditionally looked at the role of welfare and tax policies in shaping income inequality. Less attention has been paid to the key policy area of economic development. But states spend billions on economic development incentives each year to encourage firms to locate in their state. The few studies that have examined the impact of economic development policy on inequality have found mixed results, and have not considered who shapes and benefits from economic development policy when identifying possible causal mechanisms. I argue that increased incentive spending leads to increased inequality through either a market conditioning effect (incentives disproportionately boost the incomes of top earners prior to taxes) or a redistributive effect (incentives allow wealthy firms, investors, and employees to keep income that would otherwise be taxed and transferred). These mechanisms are tested using data on incentive spending and inequality across the 50 states from 1999 to 2014. The findings demonstrate that incentives increase income inequality via a redistributive effect only. This effect, though, is relatively large, long-lasting, and robust to different measures of incentive spending. Despite using economic development incentives to try to generate greater prosperity, state governments may be inadvertently exacerbating inequality.
Where Ivy Matters: The Educational Backgrounds of U.S. Cultural Elites
Steven Brint et al.
Sociology of Education, forthcoming
Status transmission theory argues that leading educational institutions prepare individuals from privileged backgrounds for positions of prestige and power in their societies. We examine the educational backgrounds of more than 2,900 members of the U.S. cultural elite and compare these backgrounds to a sample of nearly 4,000 business and political leaders. We find that the leading U.S. educational institutions are substantially more important for preparing future members of the cultural elite than they are for preparing future members of the business or political elite. In addition, members of the cultural elite who are recognized for outstanding achievements by peers and experts are much more likely to have obtained degrees from the leading educational institutions than are those who achieve acclaim from popular audiences. By focusing on the extent to which industries and cultural domains depend on quickness and facility in the absorption and manipulation of complex and sophisticated symbolic media, our analysis leads to an important specification of the role of highly selective colleges and universities in elite formation.
Corruption, judicial accountability and inequality: Unfair procedures may benefit the worst-off
Niclas Berggren & Christian Bjørnskov
Journal of Economic Behavior & Organization, forthcoming
We ask whether, as many seem to think, corruption worsens, and judicial accountability improves, inequality, and investigate this empirically using data from 145 countries 1960–2014. We relate perceived corruption and de facto judicial accountability to gross-income inequality and consumption inequality. The study shows that corruption is negatively, and that judicial accountability is positively, related to both types of inequality. The estimates are particularly pronounced in democracies and arguably causal in the case of consumption inequality, which we show using a novel identification method indicating that the full effect only occurs after institutional stability has been established. The findings suggest that “unfair procedures” – corruption and deviations from judicial accountability – may benefit the economically worst off and worsen the situation of the economic elite.
Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities
NBER Working Paper, December 2019
This paper shows that the products and prices offered in markets are correlated with local income-specific tastes. To quantify the welfare impact of this variation, I calculate local price indexes micro-founded by a model of non-homothetic demand over thousands of grocery products. These indexes reveal large differences in how wealthy and poor households perceive the choice sets available in wealthy and poor cities. Relative to low-income households, high-income households enjoy 40 percent higher utility per dollar expenditure in wealthy cities, relative to poor cities. Similar patterns are observed across stores in different neighborhoods. Most of this variation is explained by differences in the product assortment offered, rather than the relative prices charged, by chains that operate in different markets.
Do selective schooling systems increase inequality?
Simon Burgess, Matt Dickson & Lindsey Macmillan
Oxford Economic Papers, January 2020, Pages 1–24
We investigate the impact on earnings inequality of a selective education system in which school assignment is based on initial test scores. We use a large, representative household panel survey to compare adult earnings inequality of those growing up under a selective education system with those educated under a comprehensive system in England. Controlling for a range of background characteristics and the current location, the wage distribution for individuals who grew up in selective schooling areas is substantially and significantly more unequal. The total effect sizes are large: 24% of the raw 90–10 earnings gap and 19% of the conditional 90–10 earnings gap can be explained by differences across schooling systems.
Inequality: Traditional drivers and the role of union power
Florence Jaumotte & Carolina Osorio Buitron
Oxford Economic Papers, January 2020, Pages 25–58
We examine the factors explaining the increase in gross and net income inequality in advanced economies since the 1980s. Our results support the view that globalization, technological progress, financial deregulation and lower top marginal tax rates are associated with higher inequality, and we find that the relation between the decline in union density and the rise in top decile income shares — a phenomenon which labour economists have long been discussing — is widespread across advanced economies. The influence of union density on top income shares appears to be causal, as evidenced by our instrumental variable estimates and the inclusion of potentially omitted variables.
Wage inequality and skill supplies in a globalised world
Lorenzo Rotunno & Adrian Wood
Journal of Comparative Economics, forthcoming
We investigate empirically, and explain theoretically, how the relative wages of skilled and unskilled workers vary with their relative supplies in open economies. Our results combine the insights of simple labour market and trade models. In countries that trade, relative wages respond inversely to variation in skill supplies, but the response decreases with the degree of openness to trade and is small in very open countries. To reconcile our results with standard estimates of the elasticity of substitution between skilled and unskilled workers, we allow also for the influence of directed technical change and income elasticity of demand for skill-intensive goods.
Investigating core assumptions of the “American Dream”: Historical changes in how adolescents’ socioeconomic status, IQ, and GPA are related to key life outcomes in adulthood
Andrea Hasl et al.
Psychology and Aging, December 2019, Pages 1055–1076
The present study examines how historical changes in the U.S. socioeconomic environment in the 20th century may have affected core assumptions of the “American Dream.” Specifically, the authors examined whether such changes modulated the extent to which adolescents’ intelligence (IQ), their grade point average (GPA), and their parents’ socioeconomic status (SES) could predict key life outcomes in adulthood about 20 years later. The data stemmed from two representative U.S. birth cohorts of 15- and 16-year-olds who were born in the early 1960s (N = 3,040) and 1980s (N = 3,524) and who participated in the National Longitudinal Surveys of Youth (NLSY). Cohort differences were analyzed with respect to differences in average relations by means of multiple and logistic regression and for specific points in each outcome distribution by means of quantile regressions. In both cohorts, IQ, GPA, and parental SES predicted important educational, occupational, and health-related life-outcomes about 20 years later. Across historical time, the predictive utility of adolescent IQ and parental SES remained stable for the most part. Yet, the combined effects of social-ecological and socioeconomic changes may have increased the predictive utility (that is, the regression weights) of adolescent GPA for educational, occupational, and health outcomes over time for individuals who were born in the 1980s. Theoretical implications concerning adult development, aging, and late life inequality are discussed.