Technical Progress and Its Fruits: The Idea of Development in the Works of Raul Prebisch

The Seventeenth Communist Party National People's Congress in 2007 declared, for the first time, that the Chinese government would create conditions and opportunities to promote property income growth in order to enhance common prosperity. This new policy on the one hand helps to garner support for the further financial reform in China; but on the other hand, it entails potentially adverse impacts on economic equality in China, given the current configuration of income and wealth distribution, uneven process of financial development and other socio-economic structures. Employing the Institutionalist theory on property and distribution, this paper explores the impacts of institutions and institutional changes in the financial system on income and wealth inequality in China.     

A Post-Keynesian Response to Piketty's ‘Fundamental Contradiction of Capitalism’

In Capital in the Twenty-First Century, Thomas Piketty presents a rich set of data that deals with income and wealth distribution, output-wealth dynamics and rates of return. He also proposes some ‘laws of capitalism’. At the core of his argument lies the ‘fundamental inequality of capitalism’, an empirical regularity stating that the rate of return on wealth is greater than the growth rate of the economy. This simple construct allows him to conclude that increasing wealth (and income) inequality is an inevitable outcome of capitalism. While we share some of his conclusions, we will highlight some shortcomings of his approach based on a Cambridge post-Keynesian growth-and-distribution model. The paper makes four points. First, r?>?g is not necessarily associated with increasing inequality in functional distribution. Second, Piketty succumbs to a fallacy of composition when he claims that a necessary condition for r?>?g is that capitalists save a large share of their capital income. Third, post-Keynesians can learn from Piketty's insights about personal income distribution and incorporate them into their models. Fourth, we reiterate the post-Keynesian argument that a well-behaved aggregate production function does not exist and cannot explain income distribution.     

Institutional inequality and tax incidence

This paper analyses the effects of taxation when inequality is not innate. A theory of institutional inequality is presented which employs a trade model with circular production and the theory of clubs. Inequality is introduced by constraints on entry into sectors and ‘local’ groups within sectors. Individual time is treated as a fixed factor of production, and work and leisure are re-defined. The analysis suggests that when inequality is institutional and government policy does not alter the mechanisms by which institutions translate the distribution of power into the distribution of income, a redistribution of income by conventional tax-transfer schemes may not always be feasible.     

Inequality and informality

This paper presents theory and evidence on the determinants of the size of the informal sector. We propose a simple theoretical model in which it is positively related to income inequality, more so under weak institutions, and is negatively related to the economy's wealth. These predictions are then empirically validated using different proxies of the size of the informal sector, income inequality, and institutional quality. The results are shown to be robust with respect to a variety of econometric specifications. We also find that government interventions through regulations lose much of its robustness in the presence of the above factors.     

International Trade Union Organizations

An attempt is made in this article to demonstrate that Alfred Marshall and John Maynard Keynes erected a number of signposts that point in the direction of a normative, institutional and policy-oriented social economics of labor. They opined that dysfunctioning institutions had thrown most members of the working class into an abyss of poverty. According to Marshall, poverty was caused by institutional neglect of education for the masses. Hence he recommended a drastic overhaul of those institutions that impinged on education. Keynes argued that the rentiers were the villains because they had intentionally reduced their funding of entrepreneurial investments. Consequently, investments dwindled and unemployment caused working-class poverty to rise above its customary levels. Keynes's solution was public investment in private enterprises, which he called socialization of investment. This would cause euthanasia of the anti-social rentiers. Because of their recommendations, Marshall and Keynes called themselves socialists.     

论收入分配理论的历史演变和劳动价值论的实践价值

马克思的劳动价值论继承和发展了斯密、李嘉图等人承认人类财富主要来源于劳动的理论 ,既表明了劳动与物的共性 ,又表明了劳动与物的区别 ,为我们结合现代实际建立适合我国先进生产力发展要求和最广大劳动人民根本利益的收入分配理论 ,奠定了最重要的理论基础。在马克思劳动价值论的基础上 ,创立适合中国实际和需要的能够解放劳动、保护劳动的收入分配基础理论 ,是顺应历史发展潮流 ,符合经济学现代趋势 ,适应中国发展要求 ,是一项具有重要实践价值的工作。     

INCOME AND THE HAMILTONIAN1

Among the many interpretations of real national income are (i) the return to national wealth and (ii) the Hamiltonian of an appropriately-chosen dynamic model of the economy. These interpretations are sometimes alleged to be equivalent and to constitute the self-evidently ideal definition to which statistics of real national income should conform as closely as possible., The allegation is correct on some very restrictive assumptions about technology and taste. Otherwise, these interpretations are inconsistent, inexpedient as definitions of real national income and significantly at variance with the usage in the national accounts. The return to wealth is unmeasurable with the currently-available data. The Hamiltonian is typically in the wrong units. It is an accurate reflection of neither productive capacity nor welfare in an intertemporal context. It is not well-defined in a tax-distorted economy. It is rarely an indicator of the return to wealth.

A personn's income is "the maximum value he can consume during a week and still be as well off at the end of the week as he was at the beginning"

J. R. Hicks²     

Development outcomes,resource abundance,and the transmission through inequality

The paper studies the effect of resource abundance on human development in light of two complementary hypotheses: (i) resource abundance increases the inequality of income distribution within a country and (ii) higher income inequality reduces human development. The estimation of a system of equations provides support to both hypotheses. In addition, results suggest that resource abundance might also affect human development by reducing the quality of institutions. However, while statistically significant, this effect is quantitatively small. Finally, there is evidence of a strong, negative direct effect of resource abundance on human development after controlling for inequality, institutional quality, and the level of per-capita income.     

Can the link between functional and personal income distribution enhance the analysis of inequality?

The aim of this paper is to present a framework which links functional and personal income distribution. In the first part of the paper, Piketty’s book “Capital in the XXI Century” is briefly reviewed. Piketty’s framework is discussed arguing that it can only partially explain levels and changes within personal income distribution. Piketty links the returns from capital r to the rate of growth of national income g in a very innovative way comparing them within a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth and growing concentration of wealth takes place. However, the rise in the inequality of personal income distribution cannot only be explained by the rise of capital incomes. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links incomes at the macroeconomic level (national accounts) and incomes at the level of the individual/household. It is possible to set up this framework starting from individual endowments and their link to the productive structure: that is to what can be called the “generating function of personal income.” This function transforms personal endowments into personal earnings, given the productive structure, the technologies, and the market rules that determine the functional distribution. Personal income distribution and its inequality are linked to the functional one through the shares of capital and labor owned by each individual. The framework introduced here seems to be a suitable tool to account for the fact that personal income distribution is inextricably tied up to different sources of inequality in the distribution of national income. Sources come from institutional and productive structures (matrix Y), but also from the distribution of endowments and of individual/household entitlements (matrix S). This approach, we argue, allows for the assessment and evaluation of the effects of “ambitious new policies,” aimed at reducing poverty and inequality ex-ante, as suggested by Atkinson in his last book.     

Class warfare American style

The idea of class warfare, which originated with Karl Marx, frightens Americans. But the form of class warfare that exists in America is not Marxian in nature. Rather, its source is hard-right conservatives, who have stood Marx on his head, using the power of government and power in the marketplace to shift the distribution of income and wealth increasingly in favor of those at the top of the income ladder. The shift toward greater inequality has accelerated since 1973. Changes in taxes to favor those at the top have been primarily responsible for this. Turning this trend around rests with heterodox economists, as mainstream economics has no interest in wealth and income distribution. The first step is to restore faith in activist government. Paper given at the Planery Session of the Eighth World Congress of Social Economics, College of Charleston, Charleston, South Carolina, July 31, 1996.     

Process of accumulation of Italian human capital

Human capital (HC), from the economical point of view, is defined as a stock variable that represents the capacity of an individual generated by investment in education and work experience to produce a sustained flow of income throughout the life span.The proposed approaches that consider HC as unidimensional latent variable are recent and start from the economic theory specified in Dagum's recursive model [Dagum, C., 1994. Human capital, income and wealth distribution models and their applications to the USA. In: Proceedings of the American Statistical Association, pp. 253–258] which purports to explain the determination and the distribution of income, wealth, debt and HC.The aim of the present article is to generalize the previous approaches to the case of human capital conceived as a latent variable, composed by two main dimensions (Education HC and Work experience HC), underlying the process of determination of earned and capital income. The model is applied to the estimate of Italian household human capital in 2000 and compared with the US household human capital.     

Endogenous institutions and political extremism

The election of extreme political leaders is often associated with changes in political institutions. This paper studies these phenomena through a model in which the median voter elects a leader anticipating that he will impose institutional constraints—such as constitutional amendments, judicial appointments, or the implicit threat of a coup—that influence the behavior of future political challengers. It is typically optimal for the median voter to elect an extreme incumbent when democracy is less fully consolidated, when the costs of imposing institutional constraints are intermediate, and when the distribution of potential challengers is asymmetric. The median voter typically elects a more right-wing incumbent when the distribution of potential challengers shifts to the left. Implications of the model for the consolidation of democracy and institutional constraints are discussed, as are several related mechanisms through which politiciansʼ ability to affect institutions may lead voters to optimally elect extremists.     

Democracy,Rule of Law,Corruption Incentives,and Growth

We bridge the gap between the standard theory of growth and the mostly static theory of corruption. Some public investment can be diverted from its purpose by corrupt individuals. Voters determine the level of public investment subject to an incentive constraint equalizing the returns from productive and corrupt activities. We concentrate on two exogenous institutional parameters: the “technology of corruption” is the ease with which rent‐seekers can capture a proportion of public spending. The “concentration of political power” is the extent to which rent‐seekers have more political influence than other people. One theoretical prediction is that the effects of the two institutional parameters on income growth and equilibrium corruption are different according to the constraints that are binding at equilibrium. In particular, the effect of judicial quality on growth should be stronger when political power is concentrated. We estimate a system of equations where both corruption and income growth are determined simultaneously and show that income growth is more affected by our proxies for legal and political institutions in countries where political rights and judicial institutions, respectively, are limited.     

Redistribution and growth: Pareto improvements

This paper analyzes the relationship between income distribution and economic growth. It introduces heterogeneous households who have preferences for leisure into Grossman and Helpman's model of endogenous growth (in which income distribution has no effect on economic growth). Wealth distribution affects the endogenous rate of growth as the labor supply of each individual responds inversely to his permanent income. When the labor Engel curve is concave (convex), unequal wealth distribution decreases (increases) the rate of growth. Pareto-improving-growth-enhancing wealth redistributions are characterized.     

Optimal Contracting with Private Knowledge of Wealth and Ability

We examine the optimal design of contracts when an agent is privately informed about his wealth, his ability, and his effort supply. We find that the agent's wealth and ability act as perfect complements in determining the power of the incentive scheme under which he operates. Only if his ability and his wealth both increase can an agent be assured of operating under a more powerful scheme. Consequently, severe under-utilization of wealth and ability arise in equilibrium.     

Stochastic dominance and thick-tailed wealth distributions

Right-skewed and thick-tailed wealth distributions have been documented as an empirical regularity across space and time. A key mechanism for explaining these distributional features is proportional random growth. We investigate the comparative statics of a well-defined class of random growth models when allowing for stochastically ordered shifts in the wealth return process. An order-contingent monotone comparative statics property is identified, according to which pure increases in risk (e.g. higher volatility of capital returns) foster top wealth concentration whereas first-order stochastically dominated shifts in the return process (induced by e.g. proportional capital income taxation) rather lower inequality at the upper end of the distribution. Our analysis points to the potentially ambiguous effects on top wealth inequality of introducing or modifying capital income tax treatments in the presence of stochastic returns.     

Capital income taxation when inherited wealth is not observable

This paper extends the Atkinson-Stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics: productive ability and inherited wealth. Bequests are motivated by the ‘joy of giving’. A child’s inheritance is a random variable with a probability distribution that depends on his parent’s investment in a ‘bequest technology’. Public borrowing is assumed and implies the modified golden rule. We study the optimal tax policy when two instruments are available: a non-linear (wage) income tax and a proportional tax on capital income. We show that the second instrument ought, in general, to be used but that the tax rate is not necessarily positive. However, a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability.     

INSTITUTIONAL TRAPS AND ECONOMIC GROWTH

This article's point of departure is that low-quality institutions, concentration of political power and material wealth, and underdevelopment are persistent over time. Its analytical model views an equal distribution of political power as a commitment device to enhance institutional quality, thereby promoting growth. The politically powerful coalition contemplates relinquishing of its power through democratization, weighing this advantageous consequence against the limit on own appropriative ability that it entails. The possibility of two developmental paths is exhibited: with concentration of political and economic power, low-quality institutions, and slow growth; and a more equal distribution of political and economic resources, high-quality institutions, and faster growth.     

The Literature on Piketty

The extensive critical literature on Thomas Piketty’s Capital in the Twenty-First Century is surveyed under nine headings. The first deals with the conservative argument that inequality in the distribution of wealth does not matter, since a rising tide lifts all boats. Second, it is claimed that Piketty’s prediction of continuously increasing inequality and the return of ‘patrimonial capitalism’ is unjustified. Third, the quality of the empirical evidence that he cites is questioned, on a number of quite different grounds. Fourth, some critics object that Piketty’s explanation of long-run trends in the distribution of wealth is too general and too theoretical. Fifth is the argument that he has used the correct (neoclassical) theory incorrectly, exaggerating the elasticity of substitution of capital for labour. Against this, post-Keynesian critics claim, sixthly, that Piketty is using the wrong theory, and should have drawn on the Kaldor–Pasinetti model of distribution and growth, and not the discredited neoclassical analysis. Seventh, Piketty has been criticised for ignoring the distribution of wealth in developing countries. Eighth, there is a wide range of objections to his most striking policy proposal, for a progressive global wealth tax. Finally, several critics from outside economics complain that Piketty has neglected a number of non-economic dimensions of inequality. I conclude by welcoming both the book and the critical literature, and calling for the distribution of wealth to be placed back on the political agenda.     

Determinants of institutional quality: an empirical exploration

ABSTRACT

Recent literature has underlined the role that institutions play in the process of development, making it essential to understand why differences exist in the quality of institutions across countries. The goal of this study is to investigate the determinants of institutional quality. Our results confirm that institutional quality is conditioned by variables that can be modulated by public policy, such as income per capita, international openness, education, taxation, and patterns of income (re)distribution. Our conclusions differ from the pessimistic outlooks of works highlighting deterministic factors, such as colonial or geographical factors, as determinants of institutional quality.