Growth is (really) good for the (really) rich

This paper analyses the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (Journal of Economic Growth, 2002, 7, 195), but instead of looking at the bottom of the distribution, we focus on the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10%, 1%, 0.1% and 0.01% of the income distribution. Using data since 1980, we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows faster than average income: therefore, economic growth is really good for the really rich. We also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are consistent with the increase in inequality that has been recently observed at the top part of the distribution in many countries, and they are robust to different specifications, country samples and time observations.     

Twenty Years of Expenditure Inequality in Indonesia, 1993–2013

In this article, we consider the recent increase in inequality in Indonesia. We make new, consistent estimates of expenditure inequality for 1993–2013, using several measures that draw on household expenditure data from the National Socioeconomic Survey (Susenas) for 1993–2013. In doing so, we note that the central statistics agency, Badan Pusat Statistik (BPS), used grouped data for its estimates of inequality until 2009 and that this underestimated inequality up to then. Thus the rise in inequality reported since 2009 actually has a longer history. We argue that Indonesia experienced divergence and convergence at the same time: the magnitude of the rise in inequality was significant (divergence), but the rise was greatest in provinces or districts with low initial levels of inequality (convergence). We consider the literature on drivers of changes in inequality and identify a set of hypotheses, with an empirical basis, which we introduce as potential Indonesian-specific drivers of rising inequality for future exploration.     

Canada's Housing Bubble Story: Mortgage Securitization,the State,and the Global Financial Crisis

Canada's experience during and after the financial crisis appears to distinguish it from its international peers. Canadian real estate sales and values experienced record increases since the global financial crisis emerged in 2008, rather than declines, and Canada did not witness any bank failures. The dominant trope concerning Canada's financial and housing markets is that they are sound, prudent, appropriately regulated and ‘boring but effective’. It is widely assumed that Canadian banks did not need, nor receive, a ‘bailout’, that mortgage lending standards remained high, and that the securitization of mortgages was not widespread. The truth, however, does not accord with this mainstream view. In fact, the Canadian financial and housing markets reveal marked similarities with their international peers. Canada's banks needed, and received, a substantial ‘bailout’, while federal policies before and after the financial crisis resulted in the massive growth of mortgage securitization and record household indebtedness. This article documents the growth of Canada's housing bubble, the history of mortgage securitization, and of government policies implemented before and after the crisis. Instead of making the Canadian financial and housing sectors more resilient and sustainable, the outcomes of state responses are best understood as regressively redistributive.     

Do unfair perceived own pay and top managers’ pay erode satisfaction with democracy?

Many people are relatively unsatisfied with the democratic system as it currently exists. In this empirical research note, the authors present evidence that German workers, who perceive their own pay or top managers’ pay as unfair, are on average significantly less happy with the democracy in Germany. Thus, fairness perceptions in the labour market and of income inequality seem to have spillover effects on the overall satisfaction with the democratic system.     

Using Personal Car Register for Measuring Economic Inequality in Countries with a Large Share of Shadow Economy: Evidence for Latvia

We suggest using information from the state register of personal cars as an alternative indicator of economic inequality in countries with a large share of shadow economy. We illustrate our approach using the Latvian pool of personal cars. Our main finding is that the extent of household economic inequality in Latvia is much larger than officially assumed. According to Eurostat, the officially published estimate of the Gini coefficient for Latvia is 0.374 for 2009, which is much higher than the Gini coefficient value reported for all the 27 EU member countries (0.304), but significantly lower than 0.48 according to our results.     

REAL OPTIONS WITH COMPETITION AND REGIME SWITCHING

In this paper, we examine irreversible investment decisions in duopoly games with a variable economic climate. Integrating timing flexibility, competition, and changes in the economic environment in the form of a cash flow process with regime switching, the problem is formulated as a stopping‐time game under Stackelberg leader‐follower competition, in which both players determine their respective optimal market entry time. By extending the variational inequality approach, we solve for the free boundaries and obtain optimal investment strategies for each player. Despite the lack of regularity in the leader's obstacle and the cash flow regime uncertainty, the regime‐dependent optimal policies for both the leader and the follower are obtained. In addition, we perform comprehensive numerical experiments to demonstrate the properties of solutions and to gain insights into the implications of regime switching.     

Interpolating the Lorenz Curve: Methods to Preserve Shape and Remain Consistent with the Concentration Curves for Components

C¹‐class interpolation methods that preserve monotonicity and convexity and are thus suitable for the estimation of the Lorenz curve from grouped data are not widely known. Instead, parametric models are usually applied for such estimation. Parametric models, however, have difficulty in accurately approximating every part of income/expenditure distributions. This paper proposes two types of C¹‐class shape‐preserving interpolation methods. One is a piecewise rational polynomial interpolation (proposed independently by Stineman and Delbourgo) that enables consistent interpolation of the concentration curves for income/expenditure components, attaining approximately the same accuracy as that of the existing methods when applied to decile‐grouped data or to more detailed aggregation. Another is a Hybrid interpolation that employs pieces of curves derived from parametric models on end intervals. Empirical comparisons show that the Hybrid interpolation (with the assistance of parametric models for class‐boundary estimation) outperforms the existing methods even when applied to quintile‐grouped data without class boundaries.     

Endogenous ranking and equilibrium Lorenz curve across (ex-ante) identical countries: A generalization

This paper proposes a symmetry-breaking model of trade with a finite number of identical countries and a continuum of tradeable consumption goods, which differ in their dependence on nontradeable intermediate inputs, “producer services”. Productivity of each country is endogenous due to country-specific external economies of scale in its service sector. It is shown that, in any stable equilibrium, the countries sort themselves into specializing in different sets of tradeable goods and that a strict ranking of countries in per capita income, TFP, the service sector share, and the capital–labor ratio emerge endogenously. Furthermore, the distribution of country shares, the Lorenz curve, is unique and analytically solvable in the limit, as the number of countries grows unbounded. Using this limit as an approximation allows us to study what determines the shape of distribution, perform various comparative statics and to evaluate the welfare effects of trade. In doing so, this paper extends the analysis of Matsuyama (Econometrica, 81:5 (September 2013), 2009–2031) for more general and flexible forms of scale economies. It turns out that the technique introduced in Matsuyama (Econometrica, 81:5 (September 2013), 2009–2031) is useful for the equilibrium characterization in this general case as well. Although some results of comparative statics and on welfare inevitably need to be modified, they change in ways that illuminate the underlying mechanism of symmetry-breaking.     

Assessing Poverty Trends in Indonesia by International Poverty Lines

Indonesia has made well-documented and drastic progress in raising average incomes and reducing poverty. This article adds to the literature by providing a complementary perspective of poverty between 1984 and 2011. We discuss the evolution of poverty in Indonesia using international poverty lines—$1.25 per person per day (in 2005 purchasing power parity dollars) and $2.00 per day, and we add $10.00 per day. We generate estimates of poverty since 1984 and make projections based on various trends in growth and inequality. We find that Indonesia has the potential to become a high-income country by around 2025 and end $1.25-per-day and $2.00-perday poverty by 2030, but this will require strong economic growth and favourable changes in distribution. Looking ahead, the end of poverty in Indonesia may mean that a large proportion of the population will remain vulnerable to poverty for some time to come, suggesting that public policy priorities will need to balance insurance and risk-management mechanisms with more ‘traditional’ poverty policy.     

Polanyi’s ‘substantive approach’ to the economy in action? Conceptualising social enterprise as a public health ‘intervention’

For several decades now, critical public health researchers have highlighted the deleterious effects that pursuing neoliberal policies can have on the ‘causes of the causes’ of poor health and upon growing health inequalities. This paper argues that the conceptual tools of Karl Polanyi can help lend particular insight into this issue. The specific example that this paper focuses upon is the ‘social enterprise’: a form of organisation that combines both social and business objectives. The paper explores, conceptually, whether social enterprises may have the potential to act as one component of a neo-Polanyian countermovement: helping to re-embed the economy back into society, and offering greater recognition for a more comprehensive and socially imbued concept of health. Importantly, this potential is critically examined in the context of neoliberal hegemony, where challenges to the status quo have regularly been met with assimilation, co-option and/or repression.