Trend shocks and the countercyclical U.S. current account

From 1960 to 2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that shocks to the trend growth rate of productivity can help explain the countercyclical U.S. current account. Our framework is a two‐country, two‐good business cycle model in which international asset trade is limited to a single, non‐contingent bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model also captures key facts regarding international co‐movement.     

Pre-recession wage inflation and the strength of the subsequent recovery

This study shows that the rate of wage inflation in the year before a recession is positively related to the rate of employment growth in the subsequent recovery. A possible explanation for this relationship is downward nominal wage rigidity. It is also found that the prior rate of wage inflation is not significantly related to the employment decline during the ensuing recession, suggesting that prior wage inflation has a greater impact on the strength of the recovery from a recession than on the severity of the recession.     

DOUBLING U.S. EXPORTS UNDER THE PRESIDENT'S NATIONAL EXPORT INITIATIVE: IMPLICATIONS OF SUCCESSFUL IMPLEMENTATION

President Obama's National Export Initiative (NEI) is targeted at doubling U.S. exports between 2010 and 2015. We apply USAGE to quantify what the NEI would need to do to foreign import‐demand curves and domestic export‐supply curves to achieve this target. USAGE is a dynamic economy‐wide model of the U.S. incorporating recession‐relevant factor market specifications including excess capacity and wage/labor‐demand elasticities that vary with the level of employment. In our central simulation, export‐promotion policies compatible with the President's target reduce the cost of the current recession from about 70 million 1‐year jobs for the period 2008–2020 to 45 million jobs. (JEL E17, C68, E62, E65, F16)     

Forecasting the probability of US recessions: a Probit and dynamic factor modelling approach

Abstract Quantifying the probability of U.S. recessions has become increasingly important since August 2007. In a data‐rich environment, this paper is the first to apply a Probit model to common factors extracted from a large set of explanatory variables to model and forecast recession probability. The results show the advantages of the proposed approach over many existing models. Simulated real‐time analysis captures all recessions since 1980. The proposed model also detects a significant jump in the next six‐month recession probability based on data up to November 2007, one year before the formal declaration of the recent recession by the NBER.     

Measuring and Accounting for the Deprivation Gap of Portuguese Immigrants in Luxembourg

This paper examines the relative well‐being of Portuguese immigrants in Luxembourg by looking at indicators of material deprivation. We document material deprivation differences between immigrants and nationals—the “deprivation gap”—and measure the extent to which income differentials (and other sociodemographic differences) explain this gap using a combination of non‐parametric methods and a versatile graphical device. We find a large and significant deprivation gap against Portuguese immigrants, whatever the indicator considered. The extent to which the gap is merely a reflection of differences in income, however, depends on what deprivation items are taken into consideration. Income differences almost fully account for material deprivation differences when the latter is measured using the items included in the official EU social indicator of material deprivation. Inclusion of housing condition indicators mitigates this relationship and we then find compelling evidence that the deprivation gap is not entirely accounted for by income differentials.     

Neighbors' Income,Public Goods,and Well‐Being

How does neighbors' income affect individual well‐being? Our analysis is based on rich U.S. local data from the Behavioral Risk Factor Surveillance System, which contains information on where respondents live and their self‐reported well‐being. We find that the effect of neighbors' income on individuals' self‐reported well‐being varies with the size of the neighborhood included. In smaller areas such as ZIP codes, we find a positive relationship between median income and individuals' life satisfaction, whereas it is the opposite at the county, MSA, and state levels. We provide evidence that local public goods and local area characteristics such as unemployment, criminality, and poverty rates drive the association between satisfaction and neighbors' income at the ZIP code level. The neighbors' income effects are mainly concentrated among poorer individuals and are as large as one quarter of the effect of own income on self‐reported well‐being.     

TAXES,REGULATIONS AND THE CORPORATE DEBT MARKET*

Outstanding credit market debt in the U.S. corporate sector increased dramatically over the second half of the 20th century. During this period, tax rates on dividend distributions and corporate income decreased. This article argues that the observed decline in dividend and corporate income tax rates generated an improvement in the collateral value of corporate assets and led to an increase in U.S. corporate debt. To analyze this conjecture, we build a general equilibrium model with enforcement constraints that induce endogenous limits on debt financing. We find that the model can account for the time‐series features of U.S. corporate debt data.     

UNEARTHING T. REX: THE LAW AND ECONOMICS OF PALEONTOLOGICAL FINDS

This paper assesses the economic aspects of the search for and recovery of fossils on U.S. lands. The objective is taken to be the maximization of the social value of these resources, including the market and scientific values. Because independent searchers may not internalize the scientific value, we develop a reward scheme that incentivizes both optimal recovery of finds, and optimal search. We then trace how U.S. federal and state laws have tried to strike a balance between search activity and scientific recovery. We argue that existing law deals well with recovery but does not generally promote optimal search. (JEL D83, H41, I23, K11, O32)     

Viewpoint: Further results on measuring the well‐being of the poor using income and consumption

Abstract We evaluate the relative merits of income‐ and consumption‐based measures of well‐being. Our results provide evidence that consumption better captures well‐being for those with few resources. The bottom deciles of expenditures exceed those of income, suggesting under‐reporting of income. The under‐reporting rate for government transfers is high and rising. Overall non‐response is more severe in U.S. income data than in expenditure data. Furthermore, a consumption data set requires fewer observations than an income data set to obtain the same level of precision for typical estimates. Finally, very low consumption is more strongly related to other bad outcomes than very low income.     

关于美国轮胎特保案的反思

美国金融危机蔓延导致全球经济出现衰退，贸易保护主义逐渐抬头。2009年9月发生的美国轮胎特保案就是典型的例子。中国企业应该加快推进产业结构升级和国内市场拓展，积极开展区域性贸易合作，实现出口多元化，积极发挥行业协会规范价格，以“特保案”为契机，通过增强国际竞争优势和挖掘国内市场潜力，实现对贸易保护主义的有效突围。     

Inequality of Happiness in the U.S.: 1972–2010

It is well accepted that a country's GDP may not fully reflect its level of well‐being. In recent years, happiness has emerged as an alternative indicator of well‐being, and research has mainly focused on determining the level of happiness. While it is important to look at the level, the distribution of happiness is also a salient aspect in any evaluation of inequality. There has been a growing interest in the distribution of happiness, although the ordinal nature of the data makes the use of standard inequality measures problematic. Our paper contributes to the literature by exploring the distributions for the U.S. from 1972 to 2010. Based on new methods developed for ordinal data, we are able to overcome the problems associated with ordinality and obtain unambiguous rankings of happiness distributions. We also compute the level of happiness inequality using existing measures based on median centred approaches. Further, we decompose the median based inequality measures of happiness by gender, race, and region.     

Contemporary Economics and Policy Issues in the U.S.

This paper outlines a variety of contemporary policy issues facing the U.S. economy. These issues include impediments to sustained economic growth and reduced unemployment, such as tax uncertainty and ill-conceived federal income tax policies. In addition, it provides an overview of four studies that deal with such topics as budget deficits and reduced economic freedoms, the implications of raising property taxes as a source of funds for revenue-starved local governments, the regional impacts of the world-wide recession for a specific locality in the U.S., namely, Hampton Roads, Virginia, and the relationship between yield curve inversion and the incidence of recession.     

U.S. R&D internationalization in less‐developed countries: Determinants and insights from Brazil,China, and India

The growing U.S. R&D internationalization has historically been concentrated in developed countries. However, in the past few decades, the internationalization has moved toward less‐developed countries (LDCs), particularly Brazil, China, and India. What location factors are making some LDCs more “inviting” for U.S. R&D offshore? To answer this first question, we constructed a panel data using secondary data from the U.S. Bureau of Economic Analysis regarding the R&D investment made by the majority‐owned foreign affiliates of U.S. parent companies in 71 countries. We then applied a Heckman two‐step correction for selection bias test. The results highlight some important differences between developed countries’ and LDCs’ attractiveness. Based on these initial results, we conducted a detailed analysis of the determinants of U.S. R&D investments in Brazil, China, and India, which revealed that China’s determinants mostly match those found in more developed countries.     

Remittances, schooling, and child labor in Mexico

This paper studies the effects of remittances from the U.S. on child labor and school attendance in recipient Mexican households. We identify these effects using the impact of the 2008-2009 U.S. recession on remittance receipts. The methodology employed is a differences-in-differences strategy that compares households that were remittance recipients before the crisis with never-recipient households. To avoid possible selection problems, we instrument for membership in the remittance recipient group. We find that the negative shock on remittance receipts caused a significant increase in child labor and a significant reduction of school attendance.     

TESTING THE BAUMOL–NORDHAUS MODEL WITH EU KLEMS DATA

Baumol's (1967 ) seminal model of structural change predicts that large service industries financed mainly through taxes and social contributions—like health care and education, for instance—will acquire ever‐larger shares of total expenditures and that, concomitantly, overall productivity growth will decline. Applying a new testing strategy for Baumol's model, Nordhaus (2008 ) finds strong evidence in favor of the “cost and growth diseases” in U.S. GDP‐by‐industry data (published by the Department of Commerce's Bureau of Economic Analysis). The aim of the present paper is twofold. The first is to check whether Nordhaus's results can be reproduced using U.S. industry data from the EU KLEMS database. Second, Nordhaus's testing methodology is applied to European Union data from the same database. The results suggest that—although there are differences vis‐à‐vis the U.S.—the EU also shows symptoms of “Baumol's diseases.”     

Tariff evasion and rules of origin violations under the Canada‐U.S. Free Trade Agreement

Abstract Using product‐level data on trade between Canada and the U.S., this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the Canada‐U.S. Free Trade Agreement (CUSFTA). It shows that more imports go unreported at the destination country when tariffs are higher. Consistent with the tariff evasion hypothesis, this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting. Further, this paper shows that the larger Canadian tariff preference margin for the U.S. is associated with more goods originating in third countries being transshipped through the U.S. territory for re‐export. The preference margin is also positively correlated with the value of excess imports from the U.S., which qualify for preferential treatment. Both results suggest the presence of persistent violations of CUSFTA’s rules of origin.     

Is the importance of religion in daily life related to social trust? Cross-country and cross-state comparisons

We look at the effect of importance of religion in daily life on social trust, defined as the share of a population that thinks that people in general can be trusted. We make use of new data from the Gallup World Poll for 109 countries and 43 U.S. states. Our empirical results indicate a robust, negative relationship between this measure of religiosity and trust, both internationally and within the U.S. The size of this association increases with the degree of religious diversity.     

Deprivation and Subjective Well‐Being: Evidence from Panel Data

This paper uses data from the 2000–08 waves of the German Socio‐Economic Panel dataset (SOEP) to assess the impact of deprivation in various life domains upon individual well‐being. Unobserved heterogeneity is controlled for by means of a random effects model extended to include a Mundlak term and explicit controls for the respondents' personality traits. The paper shows that people care about social comparison information in a number of domains, not just income. Using an equivalent income approach, the estimates suggest that a one standard deviation deterioration of the individual position in the income distribution is as important as a 33.5 percent decrease in own income. This monetary equivalent amounts to an income variation of between 25 and 43 percent when it comes to other deprivation domains, including durables, accommodation, health, and social relations. These results recommend that in the fight against deprivation more emphasis should be directed to these non‐monetary relevant dimensions.     

Regional Economic Impacts of the World-Wide Recession: A Case Study of Hampton Roads, Virginia

Defense spending accounts for more than 45 percent of all economic activity in the Hampton Roads, Virginia metropolitan region (population 1.67 million and gross regional product $81 billion annually). Between 2008 and 2010, this was highly advantageous. Not only did defense spending double during the decade, but also it increased by about five percent annually during the recession. This buffered the region from extensive recession damage. Hence, in November 2010, the regional unemployment rate was only 7.0 percent, while it was 9.8 percent nationally. However, this scenario has begun to reverse itself. The growth in defense spending has come to a halt and almost surely will decline in the years ahead. Difficult times are on the horizon for Hampton Roads.     

HOUSING WEALTH AND U.S. MONEY DEMAND: A PANEL ESTIMATION

This article estimates a panel model for U.S. money demand using annual state‐level data for the period from 1977 to 2008. We incorporate housing wealth in the demand‐for‐money function and find strong evidence of a relationship between a broad monetary aggregate and housing wealth. This finding is robust to the inclusion of variables measuring financial heterogeneity across U.S. regions. Breaking up the sample in two subperiods shows that panel estimates including housing wealth yield more stable coefficients than both time‐series estimates and panel estimates excluding housing wealth. We also show that the link between money and housing wealth predates the recent boom‐and‐bust cycle. (JEL E41, E52)