Inequality and growth in the United States: is there asymmetric response at the state level?

A previous study that tried to assess the impact of economic growth on income inequality in the U.S. used state-level data and an ARDL panel model to conclude that economic growth worsens income inequality in the U.S. In this article, we use the same data set but an ARDL time-series model applied to each state in the U.S. to show that the above conclusion is only valid in 20 states. Additionally, we use a nonlinear ARDL approach to show that the effects are asymmetric in the short run as well as in the long run. Significant long-run asymmetric effects reveal that in 28 states both an increase and a decrease in real output have worsened income distribution.     

Measuring the size and dynamics of U.S. state-level shadow economies using a dynamic general equilibrium model with trends

We use a two-sector dynamic deterministic general equilibrium model that specifically accounts for trends among time-series variables to estimate the size of the shadow economy for the 50 U.S. states from 1999 to 2019, following Solis-Garcia and Xie (2018, 2022). This paper improves on existing measures of the state-level shadow economy (such as the multiple indicators, multiple causes (MIMIC) methodology by Wiseman (2013a)). In particular, this new measure is based on theoretical foundations, extends the previous measure to include the Great Recession, includes dollar value estimates of the shadow economy, and produces considerably more variation over time and across states. Furthermore, we explore determinants of this new shadow economy measure using a panel vector autoregressive model and find that, on average, states with higher levels of economic freedom, lower regulatory barriers, and larger real GDP have smaller shadow economies. States with bigger governments, on average, have larger shadow economies, and the effect of corruption on shadow economic activity is non-linear, with a positive initial and subsequent negative impact.     

Job Training Subsidies,Reemployment and Earnings in the Trade Adjustment Assistance Program

Average job training subsidies in the Trade Adjustment Assistance Program vary by state due to the cost of particular training programs chosen by participants. This study partitions the higher and lower subsidy states from 2010 to 2014 and estimates differences in the effectiveness of their average subsidy levels on reemployment and subsequent earnings. The rationale for partitioning is that higher cost programs tend to be more occupation or skill oriented than lower cost programs and might, therefore, be more effective. There is found to be only a small increase in the rate of reemployment with increases in the subsidy across all states, though it is fractionally higher in the higher subsidy partition. The contemporaneous state-level macroeconomic conditions have virtually no effect on the rate of reemployment. There is also a small increase in subsequent earnings as the subsidy increases, but only in the lower subsidy partition. Increases in earnings across all states are attributed to the state-level macroeconomic conditions, particularly inflation. These findings emerge from a different empirical approach than taken in earlier studies, but corroborate that the program's job training requirement has been only moderately effective overall, though better at promoting reemployment than higher earnings.     

The Endurance and Eclipse of the Controlled Vote: A Formal Model of Vote Brokerage Under the Secret Ballot

Throughout much of mankind's experience with elections, vote brokers – local elites who direct the voting decisions of a subset of the electorate – have been able to make or break political careers. In various polities, brokers have thrived in spite of the secret ballot, a surprising outcome given that vote secrecy would ostensibly allow citizens to pocket the inducements offered by such individuals and vote their consciences anyway. To address this puzzle, we develop a framework for understanding the persistence and demise of vote brokerage under the secret ballot. In our model, a broker contracts with voters using an outcome contingent contract: some fixed benefit is promised to all voters sharing one of several observable profiles should the broker's candidate win the election. Using this framework, we demonstrate that the existence of brokerage depends on the size of the electorate contained within the jurisdiction controlled by the broker, with large jurisdiction sizes tending to drive brokerage out of existence. Moreover, we detail the manner in which the strategies employed by brokers depend on their economic power, the size of social groups, and ideological polarization. Empirical evidence from Minas Gerais, Brazil is used to evaluate the performance of the model.     

Quantitative easing and median income: a state-level analysis

Due to the Great Recession, the Federal Reserve engaged in unconventional monetary policy (QE) to fight the effects of the economic downturn. Literature asserts that QE did have impacts on economic growth and helped alleviate the effects of the recession. Recently, critics have asserted that the benefits of QE may not have been equally distributed across households. In this paper, we build a state-level dataset to investigate the dynamics of QE measures and median income across the U.S states. The findings indicate that, for the period 2008 to 2014, there is statistical evidence that increases in the Federal Reserve’s balance sheet correspond with higher nominal median income. However, once we adjust for inflation, the results become statistically insignificant and the impact of QE on median income becomes almost zero.     

How they lost the presidency

For the second time in this century and the fifth time in US history, the 2016 presidential popular vote winner was not elected president. One day before the election, the author predicted (https://finpolicy.georgetown.edu) Secretary Hillary Clinton would receive between 50.49 and 51.78 percent of the two-party popular vote. She received 51.11 percent. The difference between the popular vote winner and Electoral College outcome inspired the author, ex ante, to develop a state-by-state, cross-section probit model to understand Donald Trump’s Electoral College victory, based on economic, racial and educational characteristics. Trump won the US presidency by winning some of the largest states (Pennsylvania, Michigan and Wisconsin with 17 percent of the necessary electoral votes) by small margins, particularly states with modest per capita incomes and economic growth, and losing the minority vote by less than expected.     

SEQUENTIAL OR SIMULTANEOUS ELECTIONS? A WELFARE ANALYSIS

Should all voters vote on the same day or should elections be staggered? Using a model of voting and social learning, we illustrate that sequential elections place too much weight on early states but also provide late voters with valuable information. Simultaneous elections equally weigh states but place too much weight on voter priors, providing an inappropriate advantage to front‐runners. Simultaneous elections are thus preferred if the front‐runner advantage is small, but sequential elections are preferred if the advantage is large. Our quantitative welfare analysis of presidential primaries suggests that simultaneous systems slightly outperform sequential systems.     

Electoral and welfare consequences of political manipulation of the economy

This paper examines the long-term electoral and welfare consequences of repeated strategies whereby a political office-holder induces cycles in economic variables to maximize his chances of re-election. Unlike other studies of political business cycles, we focus on questions of the desirability of these cyclical patterns and on the long-run properties of these political economic models. Noting that the welfare costs of vote maximizing in a single term extend beyond that term, we examine in detail the properties of the ‘long-run equilibrium path’ to which such cycles converge. If the economy starts above this path, vote maximizing can lead to increased social welfare and vote margins. However, if the economy starts below this path, vote-maximizing in the present can cause reduced votes and electocal defeat in subsequent terms. This possibility should lead a far-sighted, enlightened politician or political party to eschew vote-maximizing tactics and the political business cycles which accompany them and thus canhelp explain why empirical studies have not found convincing evidence of the existence of such cycles. This paper also quantifies the dependence of this long-run equilibrium path on the important political and economic parameters of the model.     

On the effects of highway investment on the regional concentration of economic activity in the USA

The empirical results in this note are based on state-level VAR estimates using private output, employment, and investment, as well as different measures of highway investment to capture, for each state, both the direct effects of highway investment in the state itself and spillover effects of highway investment in other states. Empirical results suggest that the largest states tend to also be the biggest beneficiaries of highway investments which means that highway investment has not only contributed to regional concentration of economic activity but has done so in many of the largest states thereby contributing to regional asymmetries in the country.     

Why votes have value: Instrumental voting with overconfidence and overestimation of others' errors

We perform an experiment in which subjects bid for participating in a vote. The setting precludes conflicts of interests or direct benefits from voting. The theoretical value of participating in the vote is therefore zero if subjects have only instrumental reasons to vote and form correct beliefs. Yet, we find that experimental subjects are willing to pay for the vote and that they do so for instrumental reasons. The observed voting premium in the main treatment is high and can only be accounted for if some subjects either overestimate their pivotality or do not pay attention to pivotality at all. A model of instrumental voting, which assumes that individuals are overconfident and that they overestimate the errors of others, is consistent with results from treatments that make the issue of pivotality salient to experimental subjects.     

Regional economic growth disparities: A political economy perspective

Regional differences in economic growth have been observed within many countries. Our story emphasises three region-specific factors driving growth—capital, labour and political factors. Conditional on differences in production factor (i.e., labour and capital) variations across democratic states, what role do differences in underlying “political factors” across regions play in accounting for regional growth disparities? We build a political economy model of endogenous growth where regions have the same political institutions, but experience different (and estimable) distributions over voter political biases (i.e., our “political factors”). In our model, political factors affect regional productivity as a consequence of politico-economic equilibrium. We discipline our regional growth accounting exercises by calibrating/estimating each model to American state-level economic and political-survey data. We show that the capital factor is the predominant driving force behind growth in American states. Nevertheless, regional variations in distributions of voter's political biases also account a great deal for regional growth disparities. We also evaluate how much politics would have distorted agents' welfare and regional growth, were regional economies given the opportunity to live under an efficient social planner's allocation system; and, if agents were to live under the same democratic system but where all voters have equal voting influence.     

The company you keep: Satisfaction with life,economic freedom,and preference-policy mismatch

We examine the interaction between individual preferences for markets and state-level economic freedom as it relates to Satisfaction with Life (SWL). Fundamental tenets of economic freedom assert that societies free of excessive government involvement are wealthier and, ultimately, happier; individuals who are allowed to pursue self-interest are argued to be more motivated and more productive, and so society as a whole is better off. Though there is substantial empirical evidence that freer societies are wealthier, the evidence connecting economic freedom and happiness is less clear. We explore the relationship between economic freedom and SWL at the individual level. We examine differences between personal preferences for free markets and state policy and how this ‘preference-policy mismatch’ is related to SWL. We then briefly examine the relationship between preference-policy mismatches and individual self-reported voting behavior, including implications for Tiebout sorting. This study is the first to focus on individual economic ideology, i.e. individual level of support for free markets, and SWL in the United States. Combining individual and state level data we offer improvements to prior studies in a number of areas including an enhanced measure of life satisfaction, a richer basis for examining left-right differences than simple political identification, and an examination of the effect of preference-policy mismatches on satisfaction with life. We find significant relationships between SWL and individual support for markets, state-level economic freedom, and preference-policy mismatch. Further, preference-policy mismatch is positively associated with self-reported voting frequency. We find little support for Tiebout sorting.     

Forecasting ECB monetary policy: Accuracy is a matter of geography

Monetary policy in the euro area is conducted within a multi-country, multi-cultural, and multi-lingual context. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that these have important repercussions on market behaviour. Explaining the differences in forecast accuracy, we provide evidence that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions. In large part this heterogeneity can be traced to differences in forecasting models.     

It is not easy being a Green party: Green politics as a normal good

An extensive body of literature shows that voters often credit or blame ruling political parties for economic successes and failures, respectively. This paper presents a related, but new possibility: whether local economic conditions impact Green party electoral outcomes. According to the environmental Kuznets curve, high-income countries will see decreased environmental degradation as they become wealthier, but it is yet to be seen whether this relationship is carried over to environmentally friendly political parties. Using a panel data set that includes over 250 elections from 26 European countries, we find that elections held during times of economic growth increase the vote share that Green parties win. This effect is especially robust for national elections, as opposed to elections for the European Parliament. The magnitudes are large enough to potentially alter the number of seats Green parties have in national legislatures. This provides evidence that Green parties are most likely to gain seats when the economy is growing, and support for the existence of an environmental Kuznets curve.     

Real-time forecasts of economic activity for Latin American economies

Macroeconomic policy decisions in real-time are based on the assessment of current and future economic conditions. Crucially, these assessments are made difficult by the presence of incomplete and noisy data. The problem is more acute for emerging market economies, where most economic data are released infrequently with a (sometimes substantial) lag. This paper evaluates nowcasts and forecasts of real GDP growth using five models for ten Latin American countries. The results indicate the flow of monthly data helps to improve forecast accuracy, and the dynamic factor model consistently produces more accurate nowcasts and forecasts relative to other model specifications, across most of the countries we consider.     

Economic forecast quality: information timeliness and data vintage effects

This paper investigates the impact of the timeliness of information releases and data vintage variation on economic forecast quality. Specifically, using a set of 63 key US economic series, we provide a concise measure of the forecast accuracy associated with use of economic activity indices with different publication lags. A forecasting model based on an economic activity index that is subject to a short publication lag (viz. the Aruoba-Diebold-Scotti index) is more efficient than competing models. Moreover, if this publication lag advantage is removed (by artificially imposing a publication lag restriction comparable to that of a competing indicator) this efficiency largely disappears. The final part of the analysis employs a novel (simulation-based) method of assessing the impact of data vintage variation on forecast accuracy, and finds that the results are somewhat sensitive to such variation.     

Political viability of public pensions and education. An empirical application

Public intergenerational transfers (IGTs) may emerge from the failure of private arrangements to provide optimal economic resources for the young and old. We investigate the political sustainability of the public system of IGTs by seeking to determine the outcome if the decision to reallocate economic resources per se was put to the vote. Exploiting the particular nature of the data from the National Transfer Accounts data in a political economy application in which generations cooperate under certain conditions, we show that most of the developed countries would vote in favour of a joint public education and pension system.     

Mecro‐Economic Voting: Local Information and Micro‐Perceptions of the Macro‐Economy

We develop an incomplete information theory of economic voting, where voters' information about macro‐economic performance is determined by the economic conditions of people similar to themselves. We test our theory using both cross‐sectional and time‐series survey data. A novel survey instrument that asks respondents their numerical assessment of the unemployment rate confirms that individuals' economic information responds to the economic conditions of people similar to themselves. Furthermore, these assessments are correlated with individuals' vote choices. We also show in time‐series data that state unemployment robustly correlates with evaluations of national economic conditions, and presidential support.     

Earmarking lottery proceeds for public goods: Empirical evidence from U.S. lotto expenditures

This study examines motives for lottery play using a state-level panel of lottery expenditures. We find that expenditures per capita are greater in states that earmark proceeds for public goods. Further, we find that casino gambling only impacts lotto play in general fund states.     

The impact of the death penalty and executions on state-level murder rates: 1980–2011

The purpose of the present study is to determine the effect of capital punishment on state-level murder rates. Using a large current data-set and a two-stage fixed effects model, results of the present study suggest that states with death penalties and at least one execution in a given year had 28% lower murder rates than other states. These results hold regardless of the functional form used.