Domestic agricultural value chain development and pro‐poor growth: A computable general equilibrium microsimulation application for the Democratic Republic of Congo

The economy of the Democratic Republic of Congo has gained momentum between 2003 and 2015, with a high annual growth rate of over 6%. However, poverty and employment outcomes were relatively poor, while inequality increased. This study uses a computable general equilibrium (CGE) microsimulation model to study the pro‐poor effect of alternative growth strategy that is likely to strengthen the competitiveness of agro‐food products from the Congo. We experimented with three different scenarios: labor productivity growth, marketing efficiency, and transportation efficiency. The simulations demonstrated that improving the productivity of workers in agro‐food industries has not only produced strong relative pro‐poor effects, but also has the potential to lead to income convergence between rich and poor households. The analysis also revealed the underestimated contribution of agro‐food marketing and transportation efficiency. The major finding is that marketing efficiency favors the middle class. Efficiency gains in the transportation of agro‐food products generate strong pro‐poor effects in absolute and relative terms and are likely to be particularly effective in leading to income convergence. This policy has the potential not only to increase income and employment, but also to provide positive price impacts for both producers and consumers and benefits to all households, particularly low‐income households.     

Assessing the Possible Antipoverty Effects of Recent Rises in Age‐Specific Minimum Wages in New Zealand

Real minimum wages increased by nearly 33 percent for adults and 123 percent for teenagers in New Zealand between 1999 and 2008. Where fewer than 2 percent of workers were being paid a minimum wage at the outset of this sample period, more than 8 percent of adult workers and 60 percent of teenage workers were receiving hourly earnings close to the minimum wage by the end of this period. These policy changes provide a unique opportunity to estimate the effects of the minimum wage on poverty. Although minimum wage workers are more likely to live in the poorest households, they are relatively widely dispersed throughout the income distribution. This is particularly true of teenage minimum wage workers. Furthermore, low‐income households often do not contain any working members. We estimate that a 10 percent increase in minimum wages, even without a loss in employment or hours of work, would lower the relative poverty rate by less than one‐tenth of a percentage point.     

THE SIZE DISTRIBUTION OF INCOME DURING INFLATION

This paper analyzes the effects of inflation on the size distribution of income, making use of a microsimulation model. It goes beyond earlier analyses not only in the use of microdata but also in the types of inflation modeled. Two different income concepts are used, one the money income concept of the U.S. Census Bureau and the second, called Accrued Comprehensive Income, based on the concept of income as consumption plus the change in net worth. The results of the simulation inflations are presented graphically, as the ratio of real income with inflation to real income without, by income class. The analysis concludes that the income concept chosen is crucially important. While low income households suffer modest losses and middle income households are largely unaffected, whatever income concept is used, the effects on upper income households are extremely sensitive. With a simple money income concept, the well-to-do appear to benefit from inflation but a broader concept reverses this effect. A policy to negate the distributional effect of inflation would benefit primarily the upper income households. Similarly, macroeconomic policies designed to reduce inflation at the price of slower growth and greater unemployment would not aid lower income groups to a significant degree.     

STASIS AMID CHANGE INCOME INEQUALITY IN CANADA 1965-1983

Income inequality in Canada has not changed significantly over the past two decades, though this apparent stability may be surprising in view of the major economic and social changes that occurred over this period. The share of income going to the bottom quintile remains at about four percent while the top quintile continues to receive about 40 percent of income.
Social trends such as lower fertility rates have coincided with increased female labour force participation to increase family incomes in the middle and upper-middle parts of the income spectrum. At the same time, the trend for baby boom children to establish their own separate households, and increased divorce and separation rates, have tended to create more small family units with low incomes. These social trends, in isolation of other factors, would have increased income inequality.
However, economic factors have apparently offset these tendencies. Since employment income is concentrated in the middle and upper-middle ranges, the relative fall in this source of income over the past two decades tended to be equalizing. Similarly, the fact that a large part of total investment income accrues to the elderly who have below average income implies that the trend towards high interest rates has been equalizing. Finally, the social "safety nets" put in place in the mid-1960s and early 1970s have grown in relative importance, and this too has had an equalizing impact on the distribution of income.
Given the overall stability in income inequality, the equalizing tendencies of economic factors such as high interest rates and relatively slow economic growth, with the large automatic responsiveness of governments' social safety net programs, appear to have just about exactly offset the disequalizing social factors of "baby boomers" leaving home, lower fertility, higher divorce and separation rates, and higher female labour force participation.     

HUMAN CAPITAL AND THE PROBABILITY OF DIVORCE

Concern about the high poverty rates experienced by children in female‐headed households has led to policies aimed at increasing these households' income. In this paper we present a model that analyses decisions made before and during marriage to invest in the human capital of parents and children. These decisions result from a variety of anticipated post‐divorce monetary transfers between spouses.     

Taxation of Housing: Killing Several Birds with One Stone

High and sustained housing-price growth has been observed in many countries over recent decades. In Norway, real housing prices increased by 200 percent between 1990 and 2015, and many households have high debts. In addition, maintaining the welfare state as the population ages likely involves higher taxes in the coming years. Norway taxes housing leniently. Increased taxation of housing is a way of killing several birds with one stone: generating tax revenue, moderating housing prices, and increasing efficiency. In this paper, I use a microsimulation model to determine the effects on revenue and distribution of a hypothetical tax change where housing is taxed as other capital assets. I take into account the effect of taxation on housing demand, using a simple user-cost model. This housing tax would increase personal tax revenue by 11 percent and make the tax system more progressive. Housing prices would fall by 20 percent.     

The Redistributive Effects of a Minimum Wage Increase in New Zealand: A Microsimulation Analysis

This paper examines the potential effects on inequality and poverty of a minimum wage increase, based on a microsimulation model that captures the details of household composition and the income tax and welfare benefit system and allows for labour supply responses. Results suggest that, largely due to the composition of household incomes, a policy of increasing the minimum wage has a relatively small effect on the inequality of income per adult equivalent person, and a money metric utility measure, using several inequality indices. Hence, the minimum wage policy does not appear to be particularly well targeted, largely due to many low wage earners being secondary earners in higher income households, while many low income households have no wage earners at all. These results are reinforced when allowing for wage spillovers further up the wage distribution. Nevertheless, a minimum wage increase can have a more substantial effect on some poverty measures for sole parents in employment.     

An Anatomy Of Racial and Ethnic Trends in Male Earnings in the U.S

Progress in narrowing black–white earnings differences has been far from continuous, with some of the apparent progress resulting from labor force withdrawal among lower‐skilled African Americans. This paper documents racial and ethnic differences in male earnings from 1950 through 2010 using data from the decennial census and American Community Surveys. Emphasis is given to annual rather than weekly or hourly earnings. We take a quantile approach, providing evidence on medians and other percentiles of the distribution. Treatment of imputed earnings greatly affects measured outcomes. Hispanic men have exhibited earnings growth similar to white men over several decades. Black men have been left behind economically due in large part to increased joblessness, a process exacerbated by weak labor market conditions. By 2010, joblessness had risen to over 40 percent and the median black–white earnings gap was the largest in at least 60 years.     

TRENDS IN AMERICAN LIVING STANDARDS AND INEQUALITY, 1959–2007

We analyze the trends from 1959 to 2007 using an expanded measure of income called the Levy Institute Measure of Economic Well‐Being (LIMEW). LIMEW is different in scope from the official U.S. Census Bureau measure of gross money income (MI) in that our measure includes non‐cash transfers, public consumption, imputed income from wealth, and household production and nets out personal taxes. While the annual growth rates of median LIMEW and MI are very close over the whole period (0.67 and 0.63 percent), median LIMEW grew much faster than median MI after 1982 and much slower before. The Gini coefficient of MI is uniformly higher than that of LIMEW but both show about the same change from 1959 to 2007. Decomposition analysis shows that changes in inequality are driven to a large extent by non‐home wealth in LIMEW and earnings in MI. While the racial gap in MI declined somewhat over the 1990s and 2000s, the racial gap in LIMEW actually widened a bit. Over the same years, while there was little change in the gap in MI between the elderly and non‐elderly, the LIMEW of the elderly actually overtook that of the non‐elderly.     

Shifting Taxes from Labor to Consumption: More Employment and more Inequality?

This paper investigates the effect of shifting taxes from labor income to consumption on labor supply and the distribution of income in Germany. We simulate stepwise increases in the value‐added tax (VAT) rate, which are compensated by revenue‐neutral reductions in income‐related taxes. We differentiate between the personal income tax (PIT) and social security contributions (SSC). Based on a dual data base and a microsimulation model of household labor supply behavior, we find a regressive impact of such a tax shift in the short run. When accounting for labor supply adjustments, the adverse distributional impact persists for PIT reductions, while the overall effects on inequality and progressivity become lower when payroll taxes are reduced. This is partly due to increases in aggregate labor supply, resulting from higher work incentives.     

On linking microsimulation and computable general equilibrium models using exact aggregation of heterogeneous discrete-choice making agents

Our paper contributes by bridging the gap between the (partial equilibrium) microsimulation and the computable general equilibrium (CGE) approaches, by making use of exact aggregation results from the discrete choice literature: heterogeneous individuals choosing within a set of discrete alternatives may be aggregated into a representative agent with (possibly multiple-level) constant elasticity-of-substitution/transformation preferences/technologies. These results therefore provide a natural link between the two policy evaluation approaches. We illustrate the usefulness of these results by evaluating potential effects of population ageing on the dynamics of income distribution and inequalities, using a simple overlapping generations model where individuals make leisure/work decisions, and choose a profession among a discrete set of alternatives.     

Income splitting among the self-employed

Abstract .  Under individual taxation with progressive marginal tax rates, households in which the distribution of income is unequal benefit from attributing income to the lower income household member. Self-employment provides greater potential to 'split' income in this way because of the absence of a third party reporting income. Using the Canadian experience as a case study, this paper develops a unique estimator of the incidence of illegal income splitting among self-employed couples. The results suggest that the incidence of income splitting among self-employed men in Canada is non-trivial; but no evidence is found that self-employed women attribute income to their spouses.     

Evaluating the Cost-Effectiveness of In-Work Benefits: A Simulation Study for Switzerland

Abstract. Income support for working low-income families (the 'working poor') is on top of the political agenda in Switzerland. The current social assistance system is considered inadequate to support working poor households. Several European countries have introduced in-work benefits in order to make work pay. Based on a structural labour supply model, this paper provides microsimulation results of the effects of introducing different schemes of in-work benefits. It turns out that adding a minimum hours requirement to the current social assistance system is the most cost-effective reform. One-third of expected costs can be attributed to behavioural changes in labour supply.     

A COMPARISON OF DISTRIBUTIONS OF ANNUAL AND LIFETIME INCOME: SWEDEN AROUND 1970.

The concern with income distribution has always mainly existed because of a concern with individuals' economic welfare. In recent years, the question has arisen whether the distribution of annual income—the distribution most often studied—is the best proxy for the distribution of economic welfare. Other measures, such as lifetime income, have been proposed instead.
The paper starts with a discussion of how to define and measure the distribution of lifetime income. By using a simulation model, which partly consists of estimated functions and partly of tax functions taken directly from tax laws, distributions of lifetime income, variously defined, are then constructed. These distributions are compared with each other, and with distributions of annual income. The simulations indicate that the distribution of lifetime income is considerably less unequal than the distribution of annual income. Whether inheritances are included or not seems to be of no importance for the inequality of lifetime income. If, on the other hand, we include the value of leisure time in lifetime income, inequality increases by about 10–15 percent. Distributions of income after tax have Gini coefficients which are approximately 25 percent less than the Ginis for the before-tax distributions. We thus find that the picture of inequality we get is very much dependent on which income concept we use.     

GLOBAL AND DISAGGREGATED MEASURES OF EARNINGS MOBILITY: EVIDENCE FROM FIVE EUROPEAN COUNTRIES

This paper offers the first application of the local approximation method pioneered by Schluter and Trede (2003) for the Shorrocks mobility indices across the earnings distribution for a range of European Countries covering the main European social models: Denmark, Germany, Spain, the UK and Italy in the pre‐accession EU (1994‐2001). This insightful approach allows us to offer a global and disaggregate analysis of mobility as proportionate change in inequality and hence provide the reader with a full set of information to make his/her own judgment about the extent of mobility and country ranking. Specifically, we investigate the degree to which mobility is driven by low or high earners and how this picture changes across three different earnings measures: full‐time full‐year working, adding part‐time working and then part‐year working. Our results draw out some general key facts. First of all the vast bulk of the measured mobility occurs in the tails especially the lower tail with at least half of the index driven by mobility in the bottom earning quintile. Second, in the top 20 percent of the distribution there are few movements of earnings that effect the level of permanent inequality except in Denmark. Third, no country has a clear dominance for mobility across the full earnings distribution but Denmark differs from the other countries with clearly greater mobility in the middle and at the top. Finally, we find that with the exception of Denmark and Italy, mobility does not lead to clear convergence to the mean but rather to points around 0.7‐0.8 and 1.5 to 2 times the mean.     

THE DISTRIBUTIONAL CONSEQUENCES DURING THE EARLY STAGES OF RUSSIA'S TRANSITION

We consider the distributional consequences at a national level in Russia during the initial phase of market reforms between the mid-1980s and the early 1990s. Although the incomes of many individuals changed favourably under the reforms during this period, average real household per capita income declined between 1985 and 1992. In particular during the first year of major reform in 1992 households at the lower end of the income distribution seemed to incur the largest fall in income. As a consequence there was a rise in measured income inequality. The Gini coefficient, estimated by various researchers to have been around 27 percent between the late 1960s and early 1990s. we estimate to have increased to 32.2 percent by the end of 1992. We also estimate that poverty increased with 18.5 percent of the population on incomes lying below the official subsistence level at the end of 1992.     

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.     

Accounting for the Changing Role of Family Income in Determining College Entry

In this paper, I analyze the determinants of college enrolment and the changes in these determinants over time. I propose a quantitative life‐cycle model with college enrolment. Altruistic parents provide financial support to their children. Using counterfactual experiments, I find that 24 percent of all households are financially constrained in their college decision. Constraints become more severe over time. I show that my model is consistent with a narrow college enrolment gap between students from rich and poor families, as previously reported in the empirical literature. The estimation of enrolment gaps is a popular reduced‐form approach for measuring the fraction of constrained households. My results suggest that these reduced‐form estimates are misleading, and that a structural model of parental transfers is needed to correctly identify constrained households. Further, I show that parental transfers are an important driver behind the changing role of family income as a determinant of college entry, a fact that is well documented for the US economy.     

THE AGE-WEALTH PROFILE AND THE LIFE-CYCLE HYPOTHESIS: A COHORT ANALYSIS WITH A TIME SERIES OF CROSS-SECTIONS OF ITALIAN HOUSEHOLDS

In this paper I estimate the age-wealth profile under two different identification assumptions about age, cohort and time effects. According to the life-cycle model, the two sets of assumptions should yield similar age-wealth profiles. Using the 1984–93 Italian Survey of Household Income and Wealth, the estimated average annual rate of wealth decumulation in old age is found to be between 3 and 6 percent. As in the life-cycle model, the cohort effect increases with year of birth. However, the results also uncover considerable population heterogeneity: the rates of wealth decumulation are much lower for rich households and households headed by individuals with higher education.