Markups,Tobin's q,and the Increasing Capital Share

Increasing markups have recently gained prominence as a leading explanation for the increasing share of income going to capital since the 1980s. However, the existing analysis has been limited to the United States, covers only short periods, and generally does not control for potentially important confounders. Constructing data for the share of income going to capital and markups based on Tobin's q over the period 1870–2018 for 21 advanced countries, this research examines the ability of markups to explain the movements of income shares and the tendency for factor shares to converge toward constants in the long run. We find strong support for the markup hypothesis.     

Modeling the Impact of Agricultural Growth and Government Policy on Income Distribution in India

This article uses a limited general equilibrium model to investigatethe growth and equity effects of a variety of economic and technicalchanges and selected agricultural policies in India. It exploreshow changes in food prices, rural wages, and farm profits associatedwith the Green Revolution period affected income distributionbetween net buyers and sellers of food. The model shows thatincome gains from the Green Revolution initially accrued tothe wealthier rural groups but that after 1972–73 theywere transferred to urban consumers and that by 1980–81the per capita incomes of poor and wealthier rural groups alikewere barely above their respective 1960–61 levels. Themodel is also used in counterfactual analysis of the impactof changes in technological, demographic, investment, taxation,and income redistribution variables. Its findings indicate theimportance of trade policies for the nature of the equity outcomesfrom agricultural growth and suggest that a reduction in populationgrowth and an increase in nonagricultural employment and incomeare required to convert agricultural growth into reduced ruralpoverty.     

Calm After the Storms: Income Distribution and Welfare in Chile, 1987-94

After rising during most—but not all—of the 1960–85period, inequality in Chile seems to have stabilized since around1987. Following the stormy period of economic and politicalreforms of the 1970s and 1980s, no statistically significantLorenz dominance results could be detected since 1987. Scalarmeasures of inequality confirm this picture of stability, butsuggest a slight change in the shape of the density function,with some compression at the bottom being "compensated for"by a stretching at the top. As inequality remained broadly stable,sustained economic growth led to substantial welfare improvementsand poverty reduction, according to a range of measures andwith respect to three different poverty lines. Poverty mixedstochastic dominance tests confirm this result. All of thesefindings are robust to different choices of equivalence scales.     

The Poor and the Social Sectors during a Period of Macroeconomic Adjustment: Empirical Evidence for Jamaica

Considerable uncertainty remains about the human impact of macroeconomicadjustment. Analysis of the impact of adjustment on the poorand on the social sectors is difficult because it involves evaluatinga counterfactual situation in which households are affectedby prices, incomes, and public services with the possibilityof substantial substitutions—all within an economywideframework with complicated concurrent and lagged interactions.In this article, we utilize time-series data for Jamaica toexamine whether macroeconomic adjustment, initiated in the early1980s but intensified in 1984–85, was associated withsignificant deterioration in various indicators of health, nutritional,and welfare outcomes, particularly among the poor. Althoughwe find evidence of substantial cuts in governmental expenditureson social services, there is little confirmation of significantshort-run deterioration in human capital indicators during theadjustment period.     

The Evolution of Poverty and Inequality in Indian Villages

This paper examines the evolution of poverty and inequalityin rural India by reviewing longitudinal village studies. Itexplores the main forces of economic change—agriculturalintensification, changing land relations, and occupational diversification—froma wide range of disciplinary perspectives, and it considersthe roles of various institutions as conduits of change. Althoughmost village studies support the survey-based judgment thatrural poverty declined in India during the 1970s and 1980s,they find that progress has been slow and irregular and thatinequalities within villages have persisted. These continuedinequalities may constrain both the scope for further povertyreduction from economic growth and the impact of policy interventions.      

Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada

An analysis of Canadiancorporate income tax revenues during the 1984–94 periodshows a relative shifting of tax revenue shares between Canadianand foreign-controlled corporations, and a substantial changein the debt levels of foreign-controlled corporations, as wellas Canadian-based multinationals. We claim that these changesmay have been associated with the tax reforms undertaken by theUnited States and Canada in the mid-1980s resulting in the relativechange in the tax rates between the two countries. We also hypothesizethat if this difference persists and in Canadian-controlled corporationscontinue to aggressively expand abroad, the Canadian corporatetax base could experience further pressure.     

Productivity and unemployment over the business cycle

The low correlation between cyclical unemployment and productivity over the post-war period hides a large sign switch in the mid-1980s: from significantly negative the correlation became significantly positive. Using a search model of unemployment with nominal rigidities and variable labor effort, I show that technology shocks can generate a positive unemployment-productivity correlation whereas non-technology shocks (i.e. aggregate demand shocks) tend to do the opposite. In this context, I identify two events that can quantitatively explain the increase in the correlation: (i) a sharp drop in the volatility of non-technology shocks in the mid-1980s, and (ii) a decline in the response of productivity to non-technology shocks, which from procyclical became acyclical in the last 25 years.     

Heterogeneous life-cycle profiles, income risk and consumption inequality

Was the increase in income inequality in the US due to permanent shocks or merely to an increase in the variance of transitory shocks? The implications for consumption and welfare depend crucially on the answer to this question. We use Consumer Expenditure Survey (CEX) repeated cross-section data on consumption and income to decompose idiosyncratic changes in income into predictable life-cycle changes, transitory and permanent shocks and estimate the contribution of each to total inequality. Our model fits the joint evolution of consumption and income inequality well and delivers two main results. First, we find that permanent changes in income explain all of the increase in inequality in the 1980s and 1990s. Second, we reconcile this finding with the fact that consumption inequality did not increase much over this period. Our results support the view that many permanent changes in income are predictable for consumers, even if they look unpredictable to the econometrician, consistent with models of heterogeneous income profiles.     

Analysis of Consumers’ Perceptions of Buying Conditions for Houses

This paper examines the determinants of consumers’ buying attitudes for houses from January 1984 through June 2005. Data on buying attitudes are from responses to the Surveys of Consumer Attitudes conducted by the Survey Research Center, University of Michigan. The determinants considered include current and expected interest rates, wealth, expected real disposable income, expected change in financial status and house prices. The empirical estimates show that a long-run relationship exists between buying attitudes for houses and each of the above variables. Each of these determinants also Granger cause buying perceptions. Generalized impulse responses show that shocks to each of the above variables have a predictable and permanent impact on buying attitudes. Furthermore, generalized variance decompositions suggest that both current and expected interest rates explain a large proportion of the variation in consumers’ perceptions towards buying houses. Since consumers’ attitudes towards buying houses are likely to be translated into actual purchases, this study shows that in order of importance, interest rates—both current and future—have the maximum impact on decisions to purchase houses followed by expectations of real disposable income.

Income Inequality and Mortality: A Norwegian Perspective*

While Norway has experienced income growth accompanied by a large decline in mortality during the past several decades, little is known about the distribution of these improvements in longevity across the income distribution. Using municipality‐level income and mortality data, we show that the stark income gradient in infant mortality across municipalities in the 1950s mostly closed in the late 1960s. However, the income gradient in mortality for older age categories across municipalities persisted until 2010 and only flattened thereafter. Further, the infant mortality gap between rich and poor Norwegian families based on individual‐level data persisted several decades longer than the gap between rich and poor municipalities and only finally closed in the early 21st century.     

税收竞争是当代税收鼓励经济发展的基本形式

经济全球化推动税收竞争。20世纪80年代中后期世界范围内的大规模税制改革标志着税收竞争成为当代税收鼓励经济发展的基本形式;90年代中后期的税制调整是80年代中后期税收竞争的继续,是更加完善的税收竞争形式。公司所得税和关税占各国税收总收入的比重不断下降的趋势是税收竞争的显著结果;避税地税制模式是税收竞争的彻底表现。     

Can Africa's Saving Collapse Be Reversed?

Private saving in Sub-Saharan Africa declined from more than11 percent of disposable income in the 1970s to less than 8percent in the 1980s and only partially recovered (to less than9 percent) in the 1990s. This article analyzes the determinantsof private saving in Sub-Saharan Africa, seeking to explainthe region's dismal performance and identify policies that couldhelp to reverse the region's decline in saving. The analysisshows that in Sub-Saharan Africa causality runs from growthto investment (and perhaps to private saving), whereas a risein the saving rate Granger-causes an increase in investment.Foreign aid Granger-causes a reduction in both saving and investment,and investment also Granger-causes an increase in foreign aid.The empirical analysis of private saving in Sub-Saharan Africaand other regions over 1970–95 suggests that private savingin Africa can be explained by standard behavioral models. Accordingto these models private saving in Africa lags behind that inother regions (most notably, the high performing Asian economies)because of the region's lower per capita income, high young-agedependency ratio, and high dependence on aid. The combined effectsof these factors substantially outweigh Africa's advantage fromits lower public saving and higher government consumption. Finally,analysis of the experiences of Kenya, Zimbabwe, and Botswanaprovides further insight into the saving process in Sub-SaharanAfrica.     

Firm-Level Evidence on International Stock Market Comovement *

We explore the link between international stock market comovement and the extent to which firms operate globally. Using stock returns and balance sheet data for companies in 20 countries, we estimate a factor model that decomposes stock returns into global, country-and industry-specific shocks. We find a large and statistically significant link for global shocks. A firm raising its international sales by 10 percent raises the exposure of its stock return to global shocks by two percent. This link has grown stronger over time since the mid-1980s. We find no similarly robust link between international sales and exposure to country-specific shocks. * We are grateful to Marcelle Chauvet, Kathryn Dominguez, Kristin Forbes, Geert Rouwenhorst, Dan Waggoner, participants in the Atlanta Fed Finance Brown Bag, the IMF conference on “Global Linkages”, and the Kiel Institute for World Economics workshop on multinationals for their suggestions. We are especially grateful to Franklin Allen, Marco Pagano, and two anonymous referees for extensive comments on earlier drafts of this paper. Finally, we wish to thank Menzie Chinn for sharing his capital account liberalization measure, Iskander Karibzhanov for translating some of our code into C and Young Kim for excellent research assistance.     

World capital markets and Finnish stock returns

The paper explores issues related to time-varying global equity market integration from a Finnish perspective. Finland is an interesting market since profound economic changes and financial deregulation have taken place since the mid-1980s. Using Finnish firm size ranked portfolios and a conditional four-factor asset pricing model, several restrictions on asset behaviour are examined. It is found that a proxy for changing market integration — lagged foreign equity ownership — has a significant impact on the relative importance of local and global risk factors. Significant differences are found between the pricing of shares that were freely-available to all (unrestricted shares) and domestic investors only (restricted shares). Results also suggest that major capital market reforms profoundly affect the degree of market integration, but local risk factors do not become redundant.     

Has Distance Died? Evidence from a Panel Gravity Model

The estimated coefficient of distance on the volume of tradeis generally found to increase rather than decrease throughtime using the traditional gravity model of trade. This distancepuzzle proved robust to several ad hoc versions of the modelusing data for 1962–96 for a large sample of 130 countries.The introduction of an "augmented" barrier to trade functionremoves the paradox, yielding a decline in the estimate of theelasticity of trade to distance of about 11 percent over the35-year period for the whole sample. However, the "death ofdistance" is shown to be largely confined to bilateral tradebetween rich countries, with poor countries becoming marginalized.     

The Impact of Deregulation and Financial Innovation on Consumers: The Case of the Mortgage Market

We develop a technique to assess the impact of changes in mortgage markets on households, exploiting an implication of the permanent income hypothesis: The higher a household's expected future income, the higher its desired consumption, ceteris paribus. With perfect credit markets, desired consumption matches actual consumption and current spending forecasts future income. Because credit market imperfections mute this effect, the extent to which house spending predicts future income measures the "imperfectness" of mortgage markets. Using micro-data, we find that since the early 1980s, mortgage markets have become less imperfect in this sense, and securitization has played an important role.     

Reserve stockpiling and managing its monetary consequences: the Indian experience

India's foreign exchange reserves have risen rapidly since the balance-of-payment crisis in 1991 to over US$155 billion by mid-2006. India is now the fifth largest Asian reserve holder. Despite this, scant attention has been paid to the rationale for and impact of reserves accumulation in India. This paper estimates the extent of de facto sterilization and capital mobility concurrently for the period 1990:q1–2004:q4. While India appears to have sterilized capital inflows quite aggressively, as the extent of de facto capital mobility continues to rise, it might become increasingly difficult to continue to sterilize going forward.     

INFLATION AND THE COSTS OF STABILIZATION: Historical and Recent Experiences and Policy Lessons

This article reviews various experiences with stabilization.It first examines stabilization programs in the context of hyperinflation—lookingat the experiences of Austria and Germany in the early 1920sand Bolivia in 1985—and then reviews and interprets theresults of orthodox stabilization plans (applied in Argentina,Chile, and Uruguay during the mid-1970s and early 1980s) andthose of heterodox programs (the austral plan in Argentina andthe cruzado plan in Brazil, with a glance at the Mexican andIsraeli experiences). The paper concludes with a discussionof conceptual issues and implications for the design of stabilizationpolicies.      

Corporate tax policy and incorporation in the EU

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates—possibly induced by tax competition—will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25% points since the early 1990s. This research was carried out while Ruud de Mooij was a visiting fellow at DG ECFIN in October 2006. The views expressed in this Article are those of the authors and do not necessarily reflect the official position of the European Commission.     

Does Undernutrition Respond to Incomes and Prices? Dominance Tests for Indonesia

Recent evidence suggests that food energy intakes of the poorrespond less to income than was once thought. However, it isnot intake alone that is of concern, but under-nutrition. Twofacts confound assessments of how undernutrition responds toincomes and prices: individual nutrient requirements vary ina generally unobserved way, and intakes are observed with error.By modeling observed intake distributions econometrically, straightforwardstochastic dominance tests can permit robust qualitative inferencesabout such responses. An application to Indonesia in the mid-1980sindicates that regional distributions of food energy intakeare influenced by average income levels, intraregional inequalities,and local prices of staple food grains—all of which haveunambiguous effects on undernutrition. The results suggest thatany adverse effects on inequality of a growth process wouldneed to be large to outweigh the desirable effect on undernutrition.In addition higher food staple prices still have adverse effectson undernutrition after allowing for their likely positive effectson rural incomes.