THE EVOLUTION OF EDUCATION: A MACROECONOMIC ANALYSIS

Between 1940 and 2000 there was a substantial increase in educational attainment in the United States. What caused this trend? We develop a model of human capital accumulation that features a nondegenerate distribution of educational attainment in the population. We use this framework to assess the quantitative contribution of technological progress and changes in life expectancy in explaining the evolution of educational attainment. The model implies an increase in average years of schooling of 24%, which is the increase observed in the data. We find that technological variables and in particular skill‐biased technical change represent the most important factors in accounting for the increase in educational attainment. The strong response of schooling to changes in income is informative about the potential role of educational policy and the impact of other trends affecting lifetime income.     

FERTILITY RISK IN THE LIFE CYCLE

In this article, I study fertility decisions with special emphasis on the timing of births and abortions over the life cycle. Given the policy debate regarding abortion availability and recent evidence of its positive impact on women's outcomes, understanding the fertility process should help guide the discussion. Here, I present a life‐cycle model of consumption–savings and fertility decisions in an environment with uninsurable income shocks and imperfect fertility control. My model presents a framework in which both opportunity costs of child rearing and technological restrictions (in the form of contraception effectiveness) have roles shaping lifetime fertility choices.     

Distributional Effects of a Wealth Tax under Lifetime‐Dynastic Income Concepts*

Annual wealth tax is back on the policy agenda, but discussion of its effect is not well informed. When standard methodology is used and wealth‐tax burdens are measured against annual individual income, it is found that a large share of the tax burden falls on people with low incomes. In this study, we use rich Norwegian administrative data to discuss the distributional effects of wealth tax under several different income concepts, ultimately measuring income over the lifetime of family dynasties. When measured against lifetime income and lifetime income in dynasties, wealth tax is mostly borne by high‐income taxpayers and is seen as clearly redistributive.     

War finance and the baby boom

In this paper, I extend the Barro–Becker model of endogenous fertility to incorporate specific fiscal policies and use it to study the effects of the fiscal policy changes following WWII on fertility in the United States. The US government went through large changes in fiscal policy after the beginning of WWII. The marginal income tax rate for an average American jumped from 4% on average before 1940 to approximately 25% during the war and stayed around 20% afterwards. The government debt–GDP ratio jumped from approximately 30% on average before WWII to 108% in 1946 and then dropped gradually in the following two decades to about 30% again at the end of 1960s. I find that the dramatic increase in the marginal income tax rate was an important cause of the postwar baby boom in the US because it lowered the after-tax wage and thus the opportunity cost of child-rearing. I also find that the differential change in taxes by income was an important reason why the baby boom was more pronounced among richer households (as documented by Jones and Tertilt, 2008). Furthermore, I argue that the government's debt policy may also matter for understanding fertility choices because government debt implies a tax burden on children in the future and thus affects their utility, which is a key determinant of current fertility choice in the Barro–Becker model. The results of a computational experiment show that the US government's postwar debt policy also contributed to the baby boom, but its quantitative importance is relatively small.     

INCOME REDISTRIBUTION IN URBAN CHINA BY SOCIAL SECURITY SYSTEM—AN EMPIRICAL ANALYSIS BASED ON ANNUAL AND LIFETIME INCOME

This study investigates the redistributive effect of social security reform in urban China using the nationally representative urban household surveys of 1995 and 2002. The main findings are as follows. First, public pension is the main income for the elderly in urban China. The majority of people aged 60 and over (72% in 1995 and 82% in 2002) receive a pension. Second, the social security system in urban China has increased the income of low‐income and older age groups and reduced the relative poverty rate. However, the redistributive effect did not offset the expanding income inequality, which resulted in the Gini coefficient of redistributed income in 2002 being higher than that in 1995. Third, during 1995 and 2002, both low‐income and high‐income groups received a positive net benefit from the social security system, but the net benefit increased with income. The Chinese social security system lacks progressivity in contribution, and does not favor the poor in terms of benefits. Fourth, assuming that the reformed policy was applied to public sector employees, the long‐term redistributive effect of the pension system for the working population, calculated using their lifetime income, is larger. (JEL D31, H55, I38)     

The Henderson Question? The Melbourne Institute and 50 Years of Welfare Policy

I discuss selected research contributions of the Melbourne Institute of Applied Economic and Social Research to 50 years of welfare policy for those of workforce age and focus particularly on the policy focus of R. F. Henderson, the inaugural director. Following the spirit of his 1960s poverty research, in the mid‐1970s, government doubled unemployment allowances in real terms and increased pensions by approximately 40 per cent. Both income support payments were to be indexed by average wage increases. At the time, unemployment was typically around 1 per cent and the pension take‐up for those of workforce age was also limited. Today, income support take‐up rates have probably increased fivefold. In response, government has adopted a ‘make work pay’ policy over the last two decades and indexed allowances for Consumer Price Index increases and allowances have fallen by 25–35 per cent, relative to community living standards. Pensions continue to be indexed by average wage changes. I address a range of questions arising from this experience, including: Why has government abandoned the Henderson recommendations?; Is there any evidence that a ‘make work pay’ policy is working?

     

PRODUCTIVE GOVERNMENT SPENDING,PATTERNS OF SPECIALIZATION AND ECONOMIC GROWTH IN A SMALL OPEN ECONOMY*

Constructing a two‐sector small open endogenous growth model with productive government spending, this paper examines patterns of specialization and the growth effects of fiscal policy. It is shown in this model that a change in income tax rate can cause a change in an equilibrium pattern of specialization. Because of this property, the relationship between the tax rate and the growth rate yields either a humped shape or a two‐humped shape, depending on world commodity prices. We also show that the growth maximizing tax rate is not necessarily equal to the tax rate that maximizes the level of social welfare.     

A quantitative analysis of Turkish Private Education Reform

A recent education policy Turkish government is wishing to undertake is to shut down all private supplementary education centers (SECs) unless SECs manage to convert into a private school. With this policy, the government is willing to increase equality of opportunity among students. We show quantitatively that the policy, in fact, leads to a decrease in equality of opportunity since SECs are given the option to convert into private schools. We use a political economy model of education at which households, heterogeneous with respect to exogenously set income, choose among a continuum of private schools differentiated by tuition and a public school. Households choosing the public school can privately supplement their child's education spending in any amount. Public school is free of charge, and its spending is financed by income tax revenue collected from all households. Income tax rate is determined by majority voting. Achievement of a child depends only on educational spending. We calibrate the model's parameters by matching certain targets from 2013 Turkish data. We then exogenously restrict the supplemental education spending to zero in a counterfactual experiment. We find that variance of achievement (or inequality of opportunity) increases by 23.51% and mean achievement decreases by 1.74%.     

The long‐term effects of forcible assimilation policy: The case of Indian boarding schools

For decades in North America and Australia, Indigenous children were forcibly removed from their homes and placed in boarding schools. These schools had the stated goal of cultural assimilation and are perceived as educational failures. I offer the first causal evidence on the long‐run effects of these schools. I identify these effects using the interaction of changes in Canadian national policy and regional variation in the power of the Catholic Church. I find that the average boarding school had substantial effects on both cultural and economic assimilation. However, I find suggestive evidence this is not true for highly abusive schools.     

人力资本回报率变化与收入差距:“马太效应”及其政策含义

在分析人力资本回报率变化对收入差距影响的基础上,本文运用抽样调查数据估计了教育回报率及其随教育程度和收入水平的变化。结果发现,中国目前的教育回报率仍然不高,总体来看,每增加1年教育,个人收入会增加4.34%;同时,教育回报率还展现出随收入水平增加而增加的趋势,最高95%收入者的教育回报率是最低5%收入者的2倍多。教育回报率变化的“马太效应”意味着收入差距不断扩大是市场失败的产物,在这种情况下,要缩小收入差距,人力资本投资必须更多地向穷人倾斜。     

On the interaction between education and social security

This paper uses an overlapping generations model with endogenous fertility choices to analyze the quantitative costs and benefits of subsidizing higher education, paying particular attention to the interaction between such policy and the sustainability of the social security system. The paper focuses on the demographic change as the mechanism that link both policies. It is found that an increase in education subsidies changes the educational composition of the population and lowers average fertility. Lower average fertility and higher life expectancy of educated individuals translates into changes in the age structure of the population that requires an increase in the social security tax rate in order to balance the pension budget. Such process reduces the welfare benefits of this educational policy since the rise in social security taxes lowers the after-tax lifetime earnings of almost all individuals born in the period of the policy reform and over.     

THE INCOME REDISTRIBUTION EFFECT OF CHINA'S PERSONAL INCOME TAX: WHAT THE MICRO‐DATA SAY

This article uses continuous micro‐level data to investigate the income redistribution effect of the personal income tax (PIT) in China beginning in 1997. We find that the average tax rate plays a larger role in determining the income redistribution effect of PIT than tax progressivity does. Although tax progressivity decreased as a result of rising personal incomes and a constant PIT policy prior to 2005, the income redistribution effect of the PIT improved as a result of the higher average tax rate. The tax reform beginning in 2006 increased tax progressivity while decreasing the average tax rate, thereby weakening the income redistribution effect of the PIT. Further analysis indicates that the middle‐income group was the only net loser before 2005, but it benefited from the PIT policy reform. A cross‐country comparison shows that China has a lower PIT burden and higher progressivity than developed countries; in fact, China's levels of progressivity and tax burden are similar to those of Latin American countries. (JEL H24, D31, H31)     

我国基本养老保险扩面的收入分配效应研究

文章基于一般均衡分析框架,通过构建“统账结合”制基本养老保险的异质性跨期交叠一般均衡动态模型,引入国发〔2005〕38号文的主要内容,利用政策仿真、参数估值和敏感性检验等方法,重点研究了养老保险制度覆盖面扩展的收入分配和再分配效应,并进行了理论推导和实证测算。结果发现：（1）我国基本养老保险扩面具有明显的收入分配和再分配效应,且再分配效应是累进的,发生了从城镇企业职工为代表的高收入者向以灵活就业人员和农民工为代表的低收入者的收入转移;（2）个人账户发挥了平滑作用,有利于改善不同类型劳动者终生的收入分配,但不利于收入再分配的改善;（3）社会统筹账户具有较强的收入再分配效应,有利于改善不同类型劳动者的收入再分配,缩小收入差距。参数敏感性检验表明结论是稳健的。因此,进一步优化社会统筹账户有利于减小收入不平等。     

Anti‐immigration policy in the destination country and skilled–unskilled wage inequality in a source economy with or without unemployment

This paper is aimed at theoretically examining the consequence of the anti‐immigration policy adopted in the destination country on the skilled–unskilled wage inequality in a source nation using a couple of two‐sector, specific‐factor general equilibrium models in both the presence and absence of unemployment. Emigration requires incurring some capital cost for professional skill formation on the part of every prospective emigrant that adds to the opportunity cost of emigration. The authority of the destination country determines the number of visas to be granted and hence directly controls the magnitude of skilled emigration from the source country. In the migration equilibrium, the expected skilled wage income abroad is equal to the opportunity cost of emigration. In both the presence and absence of unemployment of unskilled labor, the outcome of the policy on the wage inequality crucially hinges on both the magnitude of the fixed cost of emigration and the technological factors. In the specific‐factor Harris–Todaro model, the degree of imperfection in the unskilled labor market is an additional factor. Finally, some policy recommendations have been made for protecting the interest of the poor unskilled workforce.     

The Impact of Individual Health Account Scheme on Lifetime Income Redistribution: Evidence from China

This paper investigates the effects of a combination of individual health accounts (IHAs) and catastrophic insurance on lifetime income redistribution by examining the variations in end‐of‐life IHA balances and lifetime out‐of‐pocket health expenditures. We exploit longitudinal health expenditure data from 2005 to 2007 in Kunshan City, Jiangsu Province of China. We find a high concentration of low IHA balances at the end of life, with most equal to zero. This finding suggests that most IHA balances are used for health expenditures and that the income redistribution effect through the accumulation of IHA balance is limited. However, the results also show a wide variation in lifetime out‐of‐pocket spending in the form of deductibles and coinsurance, which implies serious inequality in individual financial burden that can lead to a large income redistribution effect.     

Parental Income and Continuing Education of Second Generation Immigrants in Sweden

Understanding the economic integration of minority ethnic communities requires an analysis of the educational process. This paper examines second‐generation immigrant youths’ educational attainments in comparison with those of similarly aged native Swedes. Binomial‐logit, grouped‐regression and multinomial‐logit models are applied to longitudinal data, 1991–1996. The results give evidence for socioeconomic determinants of post‐compulsory education and for parental influence on educational choices. Parental income affects second‐generation immigrants’ post‐compulsory education and Swedes’ choice of level of education. In general, the stronger the labour market positions of the parents, the higher the probability of the children continuing education. It is also found that the geographical origin of second‐generation immigrants matter, with youths of Asian origin having a higher probability of continuing their education. We suggest policy changes on different levels based on the evidence of the paper, as short‐run, long‐run and in general.     

POSITIONAL CONCERNS IN AN OLG MODEL: OPTIMAL LABOR AND CAPITAL INCOME TAXATION*

This article concerns optimal income taxation under asymmetric information in a two‐type OLG model when individuals’ relative consumption matters. Positional concerns affect the policy choices via two channels: (i) the average degree of positionality and (ii) positionality differences between the low‐ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate of the low‐ability type becomes substantially smaller, than in the conventional model. In addition to measures of reference consumption based on average consumption, we also address within‐generation and upward comparisons.     

HOW MISLEADING ARE INCOME DISTRIBUTIONS?

Starting from the proposition that economic welfare is better measured by the capitalized value of expected future income at age 18 than by income at a point of time, the present paper explores the bias introduced in comparison of earnings and income distributions.
The earning distribution chosen for study is that for males in 1959 in the United States. It is shown that earnings distributions are biased and therfore can be considered highly misleading in most comparisons unless the comparison involves two groups with identical age distributions and identical distributions of earnings over the working life of earners.
Further, a most striking effect can be discerned in comparing the earnings to the present value distributions by educational level. As one moves up the educational ladder, the within-group distribution of lifetime income becomes more and more equal, in sharp contrast to the findings for the distribution of earnings at a point in time.
The result are sufficiently interesting and striking to warrant further studies of distributions of present value of lifetime expected earnings (and income).     

On the Provision of Insurance against Search‐Induced Wage Fluctuations*

Should workers be provided with insurance against search‐induced wage fluctuations? To answer this question, I rely on the numerical simulations of a model of on‐the‐job search and precautionary savings. The model is calibrated to low‐skilled workers in the United States. The extent of insurance is determined by the degree of progressivity of a non‐linear transfer schedule. The fundamental trade‐off is that a more generous provision of insurance reduces incentives to search for better‐paying jobs, which increases the cost of providing insurance. I show that progressivity raises the search intensity of unemployed workers, which reduces the equilibrium rate of unemployment, but it lowers the search intensity of employed job seekers, which reduces the output level. I also solve numerically for the optimal non‐linear transfer schedule. The optimal policy is to provide little insurance up to a monthly income level of $1350, so as to preserve incentives to move up the wage ladder, and nearly full insurance above $1450. This policy reduces the standard deviation of labor income net of transfers by 34 per cent and generates a consumption‐equivalent welfare gain of 0.7 per cent. The absence of private savings does not fundamentally change the shape of the optimal transfer function, but tilts the optimal policy towards more insurance, at the expense of a less efficient allocation of workers across jobs.     

Equality of Opportunity in Four Measures of Well‐Being

A growing literature has tried to measure the extent to which individuals have equal opportunities to acquire income. At the same time, policymakers have doubled down on efforts to go beyond income when designing policies to enhance well‐being. We attempt to bridge these two areas by measuring the extent to which individuals have equal opportunities to achieve a high level of well‐being. We use the German Socio‐Economic Panel to measure well‐being in four different ways, including incomes. This makes it possible to determine if the way in which well‐being is measured matters for identifying who the opportunity‐deprived are and for tracking inequality of opportunity over time. We find that, regardless of how well‐being is measured, the same people are opportunity‐deprived and equality of opportunity has improved over the past 10 years. This suggests that going beyond income has little relevance if the objective is to provide equal opportunities.