Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
INEQUALITY AS DETERMINANT OF GROWTH The median voter hypothesis. Three alternatives tax rates, and 3 voters (individuals) Preference ordering Voter 1 (poor) Voter 2 (middle) Voter 3 (rich) A>B>C B (A = C) C>B>A A = high level of taxes, B = middle level of taxes., C = low level of taxes. Select btw. A and B. B wins 2 votes. Select btw. C and B. B wins 2 votes. Select btw. A and C. A tie. (Middle voter is a tie breaker). If preferences are single peaked and consistent (if you want low taxes then you would prefer tax rate of 10% to tax rate of 15% even if your most preferred tax rate of 5% loses out), then the final choice will be determined by the preference of the median voter. This is also the peak of the aggregate (all 3 individuals) ordinal index of preferences. BM Asian exceptionalism explained by low inflation there; high inequality in LAC partly due to high inflation there. From Bulir’s table BM OLS Bulir OLS Hyperinfl ation omitted Hyperinf. Omitted Log Income Log income squares State employment Transfers Hypeinfl High . infl. Low inflation 39.8* 39.4* -2.61** -2.57* -0.223** -0.242** -0.416** -0.397** 38.1* -2.50* -0.249** -0.388** -6.67* -8.11** 38.5* -2.53* -0.249** -0.401** -6.6* -8.8** Very low infl. 7.81** -6.0* Effect of inflation on Gini (compared to hyperinflation) -6 -6.6 -8 Very low inflation Low inflation High inflation Philippines, 1980-86 in Blejer and Guerrero (1990). Equality measure is the share of “lower” income groups (bottom 60%) over the top income quintile. (Sl/Su). They find, over 24 quarters, the effect on the income share of the poor: Positive effect Productivity Real ER Real interest rate (!!) Negative effect Underemployment Govt spending (!!) Inflation The same results are obtained if one uses the share of the bottom quintile. Some strange results: increase in interest rate →decline in GDP→ decline in share of high income groups, hence relative improvement for the poor. Also, real ER depreciation helps the bottom 60% relative to the top. United Kingdom, 1967-77, Nolan (1987) Employment income Self-employment income Gross profits or rent,. Interest dividends Rents Own pensions Other pensions Factor incomes elasticity to economic activity (capacity utilization rate) 0.27 0.86 Household sector income sources elasticity to economic activity 0.28 1.07 1.1 0.85 0.63 0.35 0.4 Undistbursed profits are most sensitive to cycles, total profits somewhat less and dividends the least. Effect of the cycle on the HHs is thus muted: elasticity of rent, interest and dividends is 0.86 while elasticity of gross profits is 1.1. Also automatic stabilizers kick in. Problems with HH results. Underestimation of the sources of income that are most pro-cyclical (returns from property, that is investment income). Cycle increases inequality in HBS mostly because of the increased share of top income groups: inequality is pro-cyclical. Gini increases on account of cycles are relatively small compare to the overall inequality changes. (That was a trend of decreasing Gini in the UK.) This pro-cyclical nature of inequality contradicts other findings that say that expansion reduces inequality because participation rates rise (as in Beach re. the US). Pro-cyclical results agree with the results from Italy (Brandolini) and also with what happened in Malaysia and Indonesia during the 1997-98 crisis. Italy, 1977-91 in A. Brandolini and P. Sestito (1994) Gini 0.322 0.016 log t 0.591g where t = time (trend), g = growth rate of GDP. Both are highly significant. R2=0.86. Each percent of growth increases Gini by 0.59 points. The pro-cyclical Gini comes from gains in the top quintile and losses for the bottom 40%. The third and fourth quintile show a very mild pro-cyclical pattern. Inflation reduces inequality (the opposite result from Blejer and Guerrero, Mlinarik, Bulir), but the same result was found for the UK and US (Blinder and Esaki, 1987, Nolan 1987 and 1988). The indexation mechanism (scale mobile) operative until 1991 was specifically designed to help the poorer segments making their percentage coverage higher (that is, indexation was a decreasing function of income). Another factor explaining this may be that inflation rises people into higher tax brackets. Hence, the “fiscal drag.” US, 1944-65 in Beach (1977) Gini 0.426 0.22 p 0.75 g 0.41Um 0.005t where p =inflation (not significant), g = growth rate of GDP (not significant), Um = male rate of UE (significant at 5%), t = time trend. Estimated for the US over the 1944-65 period. Brazil in Kane and Morisset (1993) Effect of inflation on real income by quintiles, Brazil 1970-89 Labor income change Asset income change Total income change First quintile -16.0 Second Third Fourth Fifth -4.7 -2.1 -0.8 -0.17 -2.9 -3.0 -36.4 -31.0 0.25 -18.9 -7.7 -38.8 -31.8 0.1 The rich protect their assets through indexation, and their labor income through wage bargaining.