Life Course Perspective on Economic Shocks and Income Inequality Through Age-Period-Cohort Analysis: Evidence From Finland

Utilizing age-period-cohort analysis, this paper examines the development of income distribution across periodic economic fluctuations in relation to cohorts and age groups. The empirical analysis is based on the Finnish Income Distribution Statistics and Household Expenditure Surveys covering the period of 1966–2015. The findings suggest that the period and cohort effects can be identified as the main effects on relative income, while the age effects have no meaningful impact when the control variables are taken into account. This result reveals a connection between the effects of economic shocks and cohort placement on labor market entry. Additionally, absolute income analysis suggests that economic shocks create stagnation points in income development, which are especially detrimental to cohorts who are transitioning into labor markets. Additionally, middle-income attainment has not changed due to periodic shocks but rather is related to inter-cohort inequalities and relative income differences, where the baby boomer generation is a clear winner.     

The Income and Consumption Effects of COVID-19 and the Role of Public Policy*

We provide empirical evidence on the labour market impacts of COVID-19 in the UK and assess the effectiveness of mitigation policies. We estimate the relationship between employment outcomes and occupational and industrial characteristics and assess the effects on consumption. Seventy per cent of households in the bottom fifth of the earnings distribution hold insufficient assets to maintain current spending for more than one week. We compare the effectiveness of the UK's Coronavirus Job Retention Scheme and of Economic Impact Payments in the US. The EIPs are more effective at mitigating consumption reductions as they have full coverage, depend on household structure and are higher for low-income workers.     

A Common Base Answer to the Question “Which Country Is Most Redistributive?”*

We believe that what most authors have in mind when referring to the “most redistributive country” is a tax and transfer schedule that is most redistributive across all pre-tax and transfer income distributions. In order to measure each country's tax and transfer redistribution according to the same baseline, we suggest using the transplant-and-compare method of Dardanoni and Lambert (2002, Journal of Public Economics 86, 99–122) to establish a common base. The redistributive effects of countries’ tax and transfer schedules are illustrated by employing microdata on eight countries from the Luxembourg Income Study (LIS). Of these eight countries, Finland is found to be the most redistributive country, according to the common base method.     

Autocatalytic Growth and Development and the South-North Convergence

Abstract:

This article engages with the issue of income convergence between North and South by using the autocatalytic hypothesis of growth and development. Two system models describe positive and negative feedback loops which govern economic flows between North and South. The analysis of endogenous and exogenous negative feedbacks points to the process that would slowly push the world economy towards vanishing growth rates and, eventually, halt its material growth. The present work rejects convergence in per capita GDP between North and South from the theoretical perspective. Such an outcome would stand against one of the fundamental properties of autocatalytic dynamics—centripetality— that has its causal roots in the competitive process and capitalist institutions. In that sense, the autocatalytic hypothesis provides a theoretical explanation for those empirical analyses that dismisses convergence.     

Individual labour income,stock prices and whom it may concern

In this paper, a panel model which describes the relationship between individual labour income and stock prices in Germany is estimated. The specification allows the individuals to cluster concerning the model parameters that describe first the individual labour income dynamics and second the relationship between the individual labour income and financial markets. Methodically, a Bayesian model-based non-Gaussian panel data approach, proposed by Juarez and Steel (2010a), is used. A group of individuals with a high cluster assignment probability is found. The characteristics of this group, whose individuals share the same autoregressive dynamics and a common, relatively high dependence on financial markets, are investigated further. It can be shown that this group has a statistically significantly different partition of the major occupational groups. This leads to implications for various branches of the literature, such as the pricing of human capital contracts, the hedging of individual income risk, portfolio optimization or asset pricing.     

Financial globalisation and the labour share in developing countries: The type of capital matters

In this paper, we investigate how de facto financial globalisation has influenced the labour share in developing countries. Our main argument is the need to distinguish between different types of capital in this context as they differ in their effect on the host countries' production process and vary concerning their bargaining power vis-à-vis labour. Our econometric analysis of the impact of foreign direct versus portfolio investment in a sample of about 40 developing and transition countries after 1992 supports this claim. Using different panel data techniques to address potential endogeneity problems, we find that foreign direct investment has a positive effect on the labour share in developing countries, while the impact of portfolio investment is significantly smaller and potentially negative. Our results also highlight that de facto foreign investment cannot explain the decline of the labour share in developing countries over the investigated period.     

Public Provision of Private Goods,Self‐Selection,and Income Tax Avoidance

Redistributive taxation should benefit those with low earnings capacity rather than those who choose a lower income to obtain tax savings. Several contributions have highlighted how public provision of work complements can discourage people from lowering labor supply to diminish taxable income. We show how tax avoidance, previously neglected, can alter the conclusions regarding public provision. Tax avoidance breaks the link between labor supply and reported income. An agent reducing his reported income to escape taxes might no longer forego a publicly provided labor complement, because he can now lower his income by avoiding more rather than working less.     

Venture capital trusts and the expiration of IPO lock-up provisions

Venture capital trusts (VCTs) were introduced to provide private equity capital for small expanding companies and to promote innovation. Investors in initial public offerings are rewarded with tax relief on the cost of lock-up provisions to stabilize the market. This paper examines the market reaction and trading activity around the expiration of lock-up provisions of 148 VCTs listed on the London Stock Exchange from 1995 to 2006. Downward-sloping demand curve theory suggests that an increased supply of VCT shares at the expiry date could shift their value to a new equilibrium at a lower price. Supporting this prediction, we document evidence of negative abnormal returns as well as permanent increases in the price discount relative to net asset value and trading volumes at and around the expiries of the required holding periods of VCTs. In addition, less negative abnormal returns, lower abnormal discounts and lower abnormal trading volumes are associated with VCTs that invest in AIM-listed companies due to lower information asymmetry, that experience lower prior performance due to a less pronounced disposition effect, and that are subject to a shorter lock-up horizon or are offering more generous tax benefits.     

The determinants of commercial banking profitability in low-, middle-, and high-income countries

Using a broad bank-level dataset and the GMM estimator technique described by Arellano and Bover (1995), this paper analyses how bank-specific characteristics, macroeconomic variables, and industry-specific factors affect the profitability of 10,165 commercial banks across 118 countries over the period from 1998 to 2012. Grouping the countries according to three income levels, we show that the determinants of bank profitability included in our model can explain existing profitability differences among commercial banks in low-, middle-, and high-income countries. The profitability determinants vary quite widely across the different levels of income in terms of significance, sign and size of the effect. The level of income has thus an important impact on the determinants of bank profitability.     

On the conceptual foundations of financial reporting

Standard setters advocate a balance sheet approach to financial reporting, which views assets and liabilities as primary, and income as just the derivative change in net assets. This paper argues that income is conceptually and practically better described as ‘adjusted net cash flows,’ where the adjustments are the accounting accruals. One proof of that is seen in the existence of whole accounting systems like tax accounting and national income accounting, which emphasize the determination of income but have no balance sheets. The paper also argues that an income-based approach to financial reporting is by nature better suited to reflect the success of advancing cash to earn more cash, which defines what for-profit entities do. There are two main features of the income-based approach. One is attention on the cash flows as the natural foundation for financial reporting because they are precisely determined, and provide a clear link to firm valuation. The other is attention on the accounting accruals, which serve to adjust the raw cash flows to better show the current success of investing cash to ultimately earn more cash. Specifically, the paper argues for revenue recognition which is close to current practice, and for expense recognition which is aligned with the matching principle.