Balance of Payments
Patriotism, taxation and international mobility
Salmai Qari, Kai Konrad & Benny Geys
Public Choice, forthcoming
Abstract:
Patriotic citizens intrinsically prefer living in their native country compared to living in the Diaspora. In this paper, we analyze the consequences of such a "patriotic lock-in" in a world with international migration and redistributive taxation. One implication is that countries with more patriotic populations are associated with higher redistributive taxes. We then combine ISSP survey data with OECD taxation data and provide empirical evidence supporting this hypothesis. Our results provide a word of caution: the Treasury's inherent interest in patriotic taxpayers may strengthen the political push for patriotism in an age of globalization and increased mobility.
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The Last Refuge of a Scoundrel? Patriotism and Tax Compliance
Kai Konrad & Salmai Qari
Economica, forthcoming
Abstract:
We link two cross-country datasets to analyse the relationship between individuals' patriotism and attitudes toward tax compliance. The datasets contain a number of variables that shape individuals' opportunities as well as expected benefits from tax evasion. We find a robust positive association between patriotism and tax compliance. The findings survive a variety of robustness checks, including an instrumental variables estimation to tackle the possible endogeneity of patriotism.
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Did the 48-hour week damage Britain's industrial competitiveness?
Peter Scott & Anna Spadavecchia
Economic History Review, November 2011, Pages 1266-1288
Abstract:
Britain's 1919 introduction of a 48-hour week for industrial workers has been highlighted as a key factor depressing its relative labour productivity. This largely ignores both any potential offset to lower hours from higher hourly productivity and the fact that the 48-hour week was also introduced in almost all other industrialized nations (generally involving substantially greater reductions in hours). We examine the international context and the short-term impact on British productivity, focusing on three major export industries - coal, cotton, and iron and steel. Britain did not suffer any significant relative productivity loss in these industries, while reduced working hours are shown to have been partially compensated for by higher hourly productivity.
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Richard Burkhauser et al.
Journal of Economic Inequality, September 2011, Pages 393-415
Abstract:
We analyze trends in US size-adjusted household income inequality between 1975 and 2004 using the most commonly used data source - the public use version of the March Current Population Survey. But, unlike most researchers, we also give substantial attention to the problems caused by the topcoding of each income source in the CPS data. Exploiting our access to Census Bureau internal CPS data, we examine estimates from data incorporating imputations for topcoded incomes derived from cell means and estimates from data multiply-imputed from parametric distribution models. Our analysis yields robust conclusions about inequality trends. The upward trend in US income inequality that began in the mid-1970s and increased in the 1980s slowed markedly after 1993.
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Fiscal Multipliers in Recession and Expansion
Alan Auerbach & Yuriy Gorodnichenko
NBER Working Paper, September 2011
Abstract:
In this paper, we estimate government purchase multipliers for a large number of OECD countries, allowing these multipliers to vary smoothly according to the state of the economy and using real-time forecast data to purge policy innovations of their predictable components. We adapt our previous methodology (Auerbach and Gorodnichenko, 2011) to use direct projections rather than the SVAR approach to estimate multipliers, to economize on degrees of freedom and to relax the assumptions on impulse response functions imposed by the SVAR method. Our findings confirm those of our earlier paper. In particular, GDP multipliers of government purchases are larger in recession, and controlling for real-time predictions of government purchases tends to increase the estimated multipliers of government purchases in recession. We also consider the responses of other key macroeconomic variables and find that these responses generally vary over the cycle as well, in a pattern consistent with the varying impact on GDP.
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Megumi Naoi & Ikuo Kume
International Organization, October 2011, Pages 771-795
Abstract:
Why are citizens in advanced industrialized countries willing to accept high prices for agricultural products? Conventional wisdom suggests that agricultural interests secure government protection because producers are concentrated and better politically organized than diffused consumers. Due to its focus on producer capacity for collective action, however, the literature fails to account for the high levels of mass support for agricultural protectionism in advanced industrialized nations. This article presents new evidence from a survey experiment in Japan conducted during the recent global recession (December 2008) that accounts for this puzzle. Using randomly assigned visual stimuli, the experiment activates respondents' identification with either producer or consumer interests and proceeds to ask attitudinal questions regarding food imports. The results suggest that consumer priming has no reductive or additive effects on the respondents' support for liberalizing food imports. Surprisingly, producer priming increases respondents' opposition to food import, particularly among those who fear future job insecurity. We further disentangle the puzzling finding that consumers think like producers on the issue of food import along two mechanisms: "sympathy" for farmers and "projection" of their own job insecurity. The results lend strong support to the projection hypothesis.
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Progressive taxation and tax morale
Philipp Doerrenberg & Andreas Peichl
Public Choice, forthcoming
Abstract:
Due to strong evidence indicating that tax morale affects actual tax-paying behavior, finding the determinants of tax morale could help both to understand and to fight tax evasion. In this paper we analyze the effect of progressive taxation on individual tax morale using a cross-country approach - a research question that has not been investigated in the existing literature. Our theoretical analysis leads to two testable predictions. First, an individual's tax morale is higher, the more progressive the tax schedule is. Second, the positive impact of tax progressivity on tax morale declines with income. In our empirical analysis we make use of a unique dataset of tax progressivity measures, namely the World Tax Indicators, and follow most of the tax morale literature by employing the World Values Survey to measure individual tax morale. Controlling for a wide range of potential confounders, we are able to confirm both hypotheses in our empirical analysis.
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Can the United States Transform Itself Into an Exporting Juggernaut?
Fred Bergsten
Business Economics, September 2011, Pages 154-158
Abstract:
The United States is capable of becoming an exporting juggernaut if it follows the right policies. This paper discusses what goals the United States should pursue and how it should go about reaching them. The goals should be ambitious - more ambitious than current policy suggests. Gross exports should increase to about 20 percent of GDP, whereas the current account deficit should decline to about 2 percent. The most important instruments to achieve these goals are liberalization of export controls, aggressive pursuit of trade agreements, and exchange rate correction - particularly with China. The paper gives estimates of what can be achieved by these instruments.
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Why Do Some Countries Get Better WTO Accession Terms Than Others?
Krzysztof Pelc
International Organization, October 2011, Pages 639-672
Abstract:
The process by which countries accede to the World Trade Organization (WTO) has become the subject of considerable debate. This article takes a closer look at what determines the concessions the institution requires of an entrant. In other words, who gets a good deal, and who does not? I argue that given the institutional design of accession proceedings and the resulting suspension of reciprocity, accession terms are driven by the domestic export interests of existing members. As a result, relatively greater liberalization will be imposed on those entrants that have more valuable market access to offer upon accession, something that appears to be in opposition to expectations during multilateral trade rounds, where market access functions as a bargaining chit. The empirical evidence supports these assertions. Looking at eighteen recent entrants at the six-digit product level, I find that controlling for a host of country-specific variables, as well as the applied protection rates on a given product prior to accession, the more a country has to offer, the more it is required to give. Moreover, I show how more democratic countries, in spite of their greater overall depth of integration, exhibit greater resistance to adjustment in key industries than do nondemocracies. Finally, I demonstrate that wealth exhibits a curvilinear effect. On the one hand, institutionalized norms lead members to exercise observable restraint vis-à-vis the poorest countries. On the other hand, the richest countries have the greatest bargaining expertise, and thus obtain better terms. The outcome, as I show using a semi-parametric analysis, is that middle-income countries end up with the most stringent terms, and have to make the greatest relative adjustments to their trade regimes.
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Who Offers Tax-Based Business Development Incentives?
Alison Felix & James Hines
NBER Working Paper, September 2011
Abstract:
Many American communities seek to attract or retain businesses with tax abatements, tax credits, or tax increment financing of infrastructure projects (TIFs). The evidence for 1999 indicates that communities are most likely to offer one or more of these business development incentives if their residents have low incomes, if they are located close to state borders, and if their states have troubled political cultures. Ten percent greater median household income is associated with a 3.2 percent lower probability of offering incentives; ten percent greater distance from a state border is associated with a 1.0 percent lower probability of offering incentives; and a 10 percent higher rate at which government officials are convicted of federal corruption crimes is associated with a 1.2 percent greater probability of offering business incentives. TIFs are the preferred incentive of communities whose residents have household incomes between $25,000 and $75,000; whereas TIFs are much less commonly offered by communities whose residents have household incomes below $25,000. The need to finance TIFs out of incremental tax revenues may make it infeasible for many of the poorest of communities to use TIFs for local business development.
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Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net or Long-Term Income Support
Tim Dowd & John Horowitz
Public Finance Review, September 2011, Pages 619-652
Abstract:
The authors use a unique data set of federal tax returns to analyze usage and participation patterns of the Earned Income Tax Credit (EITC) over the period 1989-2006. The authors find that most EITC recipients claimed the EITC for short periods, 61% for 1 or 2 years. Over the period examined, the EITC reached approximately 50 percent of the taxpayers with children. Finally, the authors find considerable income mobility among the EITC eligible population. Only 11 percent of those claiming the EITC in 1990 and in the third decile of income were in the same decile in 2003. They also find that 20 percent of EITC claimants claim the EITC for more than 5 years.
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Technology and the great divergence: Global economic development since 1820
Robert Allen
Explorations in Economic History, forthcoming
Abstract:
The paper measures productivity growth in seventeen countries in the nineteenth and twentieth centuries. GDP per worker and capital per worker in 1985 US dollars were estimated for 1820, 1850, 1880, 1913, 1939 by using historical national accounts to back cast Penn World Table data for 1965 and 1990. Frontier and econometric production functions are used to measure neutral technical change and local technical change. The latter includes concurrent increases in capital per worker and output per worker beyond the highest values achieved. These increases were pioneered by the rich countries of the day. An increase in the capital-labour ratio was usually followed by a half century in which rich countries raised output per worker at that higher ratio. Then the rich countries moved on to a higher capital-ratio, and technical progress ceased at the lower ratio they abandoned. Most of the benefits of technical progress accrued to the rich countries that pioneered it. It is remarkable that countries in 1990 with low capital labour ratios achieved an output per worker that was no higher than countries with the same capital labour ratio in 1820. In the course of the last two hundred years, the rich countries created the production function of the world that defines the growth possibilities of poor countries today.
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Did China Diversify Its Foreign Reserves?
Liugang Sheng
Journal of Applied Econometrics, forthcoming
Abstract:
This paper takes a novel approach to detect the latent currency portfolio of Chinese foreign exchange reserves and the underlying portfolio management strategies during 2000 and 2007. Based on a portfolio accounting identity and the budget constraint of the Chinese central bank's holding of foreign assets, the monthly growth rate of reserves can be decomposed into monthly rate of return, valuation effects of exchange rates, and monthly net purchase rate. The valuation effect reveals the value share of each currency. Bayesian inference is adopted to estimate the state-space model with a mixture of Gaussian distributions. The results show that China significantly and dramatically diversified its reserves out of the US dollar in 2002: both the euro's value and quantity shares increased from 5% to more than 20%. By the end of 2007, China held about (at most) 67.3% of its reserves in the US dollar, 22% in the euro, 2.5% in the Japanese yen, 4.7% in the Australian dollar, and 3.5% in the British pound. The average annual rate of return was about 3%.
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The Effects of Tax Evasion on the Choice between Personal and Corporate Income Taxation
Diego d'Andria
Public Finance Review, September 2011, Pages 682-711
Abstract:
This article analyzes the relative choice between different tax tools burdening corporate incomes or dividends at the personal level in open economies where tax evasion, both corporate and personal, is not null. A theoretical discussion explains why a government may decide to levy a positive corporate income tax even when capital is internationally mobile while shareholders are immobile. Since tax auditing may be more effective on corporate incomes rather than on personal incomes, a benevolent or malevolent government may face a trade-off between reducing available capital supply and reducing total taxation revenues. The intuition is then submitted to empirical test using panel data from twenty-eight Organisation for Economic Co-operation and Development (OECD) countries. The results hint at a possible role for tax evasion in explaining why some countries prefer to tax corporate incomes rather than dividends and capital gains under personal taxation.
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The legacy of the Swedish gift and inheritance tax, 1884-2004
Henry Ohlsson
European Review of Economic History, December 2011, Pages 539-569
Abstract:
The objective of this article is to study how people change their behaviour when taxes change. I follow the revenue from gift, inheritance and estate taxes in Sweden over more than a century. Second, I focus on a unique episode during the second half of the 1940s when gifts and gift tax revenue exploded. I have access to aggregate tax revenue data since 1884. Moreover, I have constructed a rich micro-data set of all gifts reported during the period 1942-9 in one county. A first main result is that gifts, inheritances and estates were never important sources of tax revenue. Tax revenue as a share of GDP and total government revenue had already reached peaks in the 1930s. The role of these taxes has instead primarily been equity and to provide integrity for other tax bases. Second, expectations were important. Gift tax revenue during the 1940s started to increase long before a new estate tax and increased wealth taxation were decided and implemented. The increase began even before the legislative process started. Third, economic power and economic control were important. Parents gave to their children to avoid taxes, but only when the expected gain became large enough and in ways that left them with as much economic power as possible.
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Explaining convergence of OECD welfare states: A conditional approach
Carina Schmitt & Peter Starke
Journal of European Social Policy, May 2011, Pages 120-135
Abstract:
Existing studies have found only limited empirical evidence of welfare state convergence. Moreover, although there are good theoretical reasons both for and against welfare state convergence, there are virtually no studies that have explicitly tested the assumed effects. We argue that the concept of conditional convergence helps to both better describe and explain the phenomenon. By applying error correction models, we examine conditional convergence of various types of social expenditure in 21 OECD countries between 1980 and 2005. Our empirical findings go beyond the existing literature in two respects. First, we show that there is very strong evidence of convergence across all categories of social expenditure when conditional factors are taken into account. Second, we demonstrate that the speed of convergence is highly driven by globalization and European Union membership and shaped by existing welfare state structures.
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International trade and income distribution: Reconsidering the evidence
Isabelle Bensidoun, Sébastien Jean & Aude Sztulman
Review of World Economics, November 2011, Pages 593-619
Abstract:
This article reassesses the link between international trade and income distribution. We argue that one way to assess the influence of international trade upon income distribution is to take account of each country's specific trade patterns by measuring the changes in the factor content of trade. The econometric specification is based on changes in Gini indices (over non-overlapping 4-year intervals), computed exclusively from series drawn from the same source. Our results show that a change in the factor content of trade has a significant impact on income distribution. The sign and magnitude of this impact is conditional on the national income level. We find that an increase in the labor content of trade raises income inequality in poor countries, but reduces it in rich countries (the reverse is true for the capital content of trade). In particular, we show that in the 1980s and 1990s, international trade may have contributed significantly to widening income inequalities in developing countries.
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Legitimating Inequality: Fooling Most of the People All of the Time
Jon Wisman & James Smith
American Journal of Economics and Sociology, October 2011, Pages 974-1013
Abstract:
Over the three decades leading up to the crisis of 2008, inequality dramatically increased in the United States and Great Britain. What stands out, but is seldom noted, is that this occurred within democracies where the relative losers - the overwhelming majority - could in principle have used the political system to block or reverse rising inequality. Why did they not do so? A glance at history reveals that peoples have only very infrequently contested inequality because they were led to believe that their inferior status in terms of income, wealth, and privilege was just, that it was not really so bad, or that it was necessary for their future well-being. Ideological systems legitimated a status quo of inequality, or in more modern times even increasing inequality. This article surveys the manner in which inequality has been historically legitimated, first predominantly by religion, then predominately by economic thought. Attention is then focused on the manner in which contemporary economic science and its popular interpretations in the media have served to legitimate inequality in the U.S. since the mid-1970s. The article concludes with a reflection on the unique conditions that enable the legitimation of inequality to be delegitimated.