Measuring lnequality in the Middle East 1990–2016: The World’s Most Unequal Region?

In this paper we combine household surveys, national accounts, income tax data and wealth data in order to estimate income concentration in the Middle East for the period 1990–2016. According to our benchmark series, the Middle East appears to be the most unequal region in the world, with a top decile income share as large as 64 percent, compared to 37 percent in Western Europe, 47 percent in the US and 55 percent in Brazil (see Alvaredo et al. 2018). This is due both to enormous inequality between countries (particularly between oil‐rich and population‐rich countries) and to large inequality within countries (which we probably under‐estimate, given the limited access to proper fiscal data). We stress the importance of increasing transparency on income and wealth in the Middle East, as well as the need to develop mechanisms of regional redistribution and investment.     

A COMPARATIVE STUDY OF TRAINING IN THE PRIVATE AND PUBLIC SECTORS: EVIDENCE FROM THE UNITED KINGDOM AND THE UNITED STATES

Formal training programs are one of the main channels through which workers become more productive and experience wage growth. So far, however, most of the results on the effects of employer‐provided training come from studying the training received by private sector workers only. We extend the literature by identifying and comparing the effects of private‐employer‐provided and public‐employer‐provided training in the United States and the United Kingdom. We address this question using two independent data sets from the British Household Panels Surveys and the American National Longitudinal Survey of Youth of 1979. (JEL J24, J31, J40)     

The golden hello and political transitions

We analyze the influence of IMF and World Bank programs on political regime transitions. We develop an extended version of Acemoglu and Robinson’s [American Economic Review 91, 2001] model of political transitions to show how the anticipation of new loans from international financial institutions can trigger political transitions which would not otherwise have taken place. We test this unexplored implication of the theory empirically. We find that the anticipation of receiving new loan programs immediately after a political regime transition increases the probability of a transition from autocracy to democracy and reduces the probability of democratic survival.     

Foreign investment and expropriation under oligarchy and democracy

We study the incentives to expropriate foreign capital under democracy and oligarchy. We model a two‐sector small open economy where foreign investment triggers Stolper–Samuelson effects through reducing exporting costs. The incentives to expropriate depend on the distributional effects associated to the investment. How investment affects the incomes of the different groups in society depends on the sectors where these investments are undertaken and on structural features of the economy such as factor intensity, factor substitutability, and price and output elasticities. We characterize the equilibria of the expropriation game and show that if investment is undertaken in the sector that uses labor less intensively then democratic expropriations are more likely to take place. We test this prediction and provide strong evidence of its validity.     

In Search of Environmental Spillovers

There is an extensive literature that examines the relationship between foreign direct investment (FDI) and the productivity and competitiveness of domestic firms. Using estimation techniques from the productivity spillover literature, this paper tests for the presence of environmental spillovers from foreign firms. On the basis that foreign‐owned firms may encourage firms in their extended supply chain to improve their environment‐related management practices, evidence for the existence of environmental spillovers should be easier to find than productivity spillovers where firms naturally attempt to minimise intra‐industry knowledge leakage. In this paper we show that, first, foreign‐owned firms are more likely to implement environmental management systems (EMS) and, second, that the presence of foreign‐owned firms in those sectors that a firm supplies can encourage good environmental practice. This is especially true if a firm is foreign, has high absorptive capacity, and operates in the presence of formal and informal networks.     

Top incomes and earnings in Portugal 1936–2005

This paper analyzes income and earnings concentration in Portugal from a long-run perspective using personal income and wage tax statistics. The results suggest that income concentration was much higher during the 1930s and early 1940s than it is today. Top income shares estimated from reported incomes deteriorated during the Second World War, even if Portugal did not take active participation in the conflict. However, the magnitude of the drop was less important than in other European countries. The level of concentration between 1950 and 1970 remained relatively high compared to countries such as Spain, France, UK or the United States. The decrease in income concentration, started very moderately at the end of the 1960s and which accelerated after the revolution of 1974, began to be reversed during the first half of the 1980s. During the last 15 years top income shares have increased steadily. The rise in wage concentration contributed to this process in a significant way. The evidence since 1989 suggests that the level of marginal tax rate at the top has not been a primary determinant of the level of top reported incomes. Marginal rates have stayed constant in a context of growing top shares.     

THE MONETARY METHOD AND THE SIZE OF THE SHADOW ECONOMY: A CRITICAL ASSESSMENT

A widely applied approach to measure the size of the shadow economy, known as the "monetary method" or the "currency approach," is based on econometric estimates of the demand for money. These estimates are used to get the currency held by economic agents in excess of the amount they need to finance registered transactions. This excess of currency multiplied by the income-velocity of circulation (assumed to be equal in the registered and shadow economies) gives a measure of the hidden GDP. This paper shows that the monetary method only produces coherent estimates if the income-elasticity of the demand for currency is one and suggests a way to correct the estimated size of the shadow economy when such elasticity is not one. The correction is applied to existent measures for different countries.     

Heterogeneous labor skills,the median voter and labor taxes

This paper analyzes the median voter?s most preferred sequences of labor taxes in the standard neoclassical growth model. We consider an infinite horizon economy in which agents are heterogeneous with respect to both initial wealth and labor skills. We start by providing a set of sufficient conditions for the existence of a Condorcet winner. We then characterize the most preferred tax sequence by the median agent. First, we show that marginal labor taxes depend directly on the absolute value of the distance between the median and the mean value of the skills? distribution. Second, we find that in contrast to the intuition stemming from standard representative agent economies, labor taxes are more volatile and counter-cyclical taxation (e.g., increasing taxes in recession) might be optimal depending on the correlation between inequality and TFP. To assess the quantitative relevance of these findings, we calibrate the model economy to six countries and find that counter-cyclical labor taxation is optimal for all but the US.     

Contribution Ceilings and the Incidence of Payroll Taxes

Social security contributions (SSCs) are typically formally split between employers and employees as payroll taxes, levied on earnings at a constant tax rate that applies only up to a ceiling, above which the marginal tax rate falls to a reduced rate, often 0. Such contribution ceilings create a concave kink point in the budget set of workers and hence should generate a dip in the distribution of earnings around the ceiling through labour supply responses (the reverse of bunching expected at convex kink points) but such a dip is not observed empirically. This paper sets out a new approach to infer the incidence of SSCs that exploits the absence of this dip and the fact that (mechanically) the distributions of labour cost (earnings inclusive of all payroll taxes), gross earnings (net of employer payroll taxes) and net earnings (net of both employer and employee payroll taxes) cannot all be smooth around a kink. The other papers in this special issue apply the method to data for Germany, France, the Netherlands and the UK and all find that distribution of gross earnings is smooth around kinks (implying that the distributions of labour costs and net-of-tax earnings are not) even though the concept of gross earnings is irrelevant in the standard static model of labour supply and demand that dominates the public economics literature. This suggests that other features of the labour market, such as wage bargaining based on the gross earnings concept, are relevant for determining the incidence of SSCs.