econ of inequality final

what does ex-post mean?

"after the fact"

what does ex-ante mean?

"before the event happens"

what is a summary of what has happened to the number of jobs/workers at the bottom, middle and top of the distribution in the UK from 1970-2010?

*-there's a widening of the wage distribution at the top and bottom* -at the bottom, the decrease in some of the jobs can be explained by globalization (some jobs are easier to outsource than others) and changes in labor market institutions...declining support of labor unions, decrease in real min wage -at the top and bottom, changes in the labor supply and skill biased technological change can explain why the number of jobs have increased at the very bottom and very top (skill biased can't explain increasing bottom though) -at the top only, the earnings of superstars might offset the average wage by a TON (like how oprah makes so many magnitudes more than people at the bottom of the distribution, as well as high paid athletes)

what does this social insurance mean for inequality and what were its costs?

*for inequality:* -protection against risk is expanded to the entire population -so basically it reduced the risk of poverty which decreased inequality -expansions of pension coverage *costs* -extensive monetary costs and efficiency costs: reduction of the overall efficacy of insurance, reduction of domestic savings (which crowded out private savings), misallocation of resources (tax on formal employment) -basically, Having these programs affects the efficiency of the other type of assistance

what happens in the mature stages of development (there are 3 stages) according to the unified approach model

*stage 1:* now there are higher levels of k than there were at the early stages of development. here, capitalists start investing in human capital (start leaving bequests that increase every generation)...but workers still don't have bequests...inequality is high here *stage 2:* capitalists are unconstrained at this point. so they invest their bequests more optimally than they did in stage 1. workers also begin to leave bequests now and start to acquire some human capital (still at a lower e than optimal tho) and inequality is bad here for human capital accumulation *stage 3:* everyone (capitalists and workers) invest in bequests optimally now. since no one is constrained here, inequality doesn't play a role in development

what does this globalization that enabled the increasing elasticity of supply of corporations and such do to tax?

-*feasibility of global wealth tax isn't v realistic?* -corporate taxation competition -capital income taxation

what are the some of the several theories that were proposed regarding wealth accumulation?

-*high r-g values allows wealth inequality to reach higher levels* -there is a role of other income on wealth accumulation (like labor income since a lot of ppl earn most of their income this way and invest some of this money) -institutions play a role (markets, bequests-->inheritance)

Effect of marginal rates on poorer ppl

-*marginal tax rate for low earners too high* -we need to worry about how their income will react to taxation. for the top of the distrib, something to worry about: if we tax them too much will they reduce their income and we'll collect less tax revenue than we would've otherwise

what were the results of this progresa regression meant ot test the effects of the CCT program on things like child morbidity, height and anemia?

-*morbidity*: PROGRESA newborns were 25.3% less likely to be ill the previous month than untreated newborns -*height:* PROGRESA children are 0.96 cm taller than control children -*anemia:* PROGRESA children were 25.5% less likely to anaemic -They found these cash transfers do make a lot of diff for the children.

obvi the role of economic institutions plays a role in capital accumulation. what types of things do economic institutions determine?

-*supply of skillz (education)* -min wage, bargaining power -market regulations (taxation) -technology -turns out that all of the above things affect r and g AND inequality lol

describe PROGESA/OPORTUNIDADES (the first large scale conditional cash transfers program)

-93% of low income househouds in underserved communities took up the program...So, a lot of ppl that were eligible did take this opportunity up-->this means that it was not costly enough to discourage some ppl to take this on -cash transfers of 20-30% of your household income -here were some of the conditions: Children vaccination, Children nutrition: checkups & supplements, Parental education regarding health, nutrition, hygiene, Prenatal care for pregnant women & postpartum care for lactating women, Yearly physical check-ups for all family members, Older children: school attendance and progression

what is Contributory social insurance (UK - social insurance)

-Benefits are paid from wage taxes -Workers and employers internalize the cost -"Informal workers" are not covered by contributory social insurance (this increases the risk of poverty and inequality)

what has happened to overall world inequality?

-Large increases in world inequality over the last two centuries. *30% increase in Gini Index*, larger for other measures -large increase in *between-country inequality* over the entire period -*within-country inequality* compensated for some periods/countries (compensated=money given in recognition of loss)

summary of the noncontributory social insurances and conditional cash transfers programs impact on inequality:

-Noncontributory social insurances substantially expanded their coverage, but have a moderate effect on inequality -Conditional cash transfers improved health, schooling & other outcomes for children -policies will have costly/undesired effects most of the time even if the generally do help ppl

what did the role of housing play in the evolution of inequality in the UK.

-Share of owner-occupied housing among the total population (relative to how much wealth was non-housing wealth) went from 23% in 1918 to 68% in 1991.

share of income from labor vs. income from capital. how did this evolve from the 1970s-1970s-2000s for the US and GB?

-US: 75%-79%-75% -GB: 74%-80%-72%

how do the European trends differ from american trends in terms of how much total wealth was owned by the top decile form 1810-2010?

-at the beginning (1800's) we observe lower wealth in the hands of the top 10% in the US compared to european countries (*wealth more concentrated in europe at the beginning*) this was before WWI...changed after the war -the wealth didn't decrease as much wealth in european countries -since the US was a newer country at this time, lots of immigrants didn't come in with as much inherited wealth as europeans -now we observe a pretty flat trend -in the mid 1900's wealth inequality was higher in europe than the US -from the 1910-1970s, there was a decrease in wealth accumulation (starker decrease in europe) -BUT NOW there's a slowly increasing pattern from 1970s

what happened to shares of income by the top 10%, middle 40% and bottom 50% in france from 1900-2010?

-at the beginning, top 10% owned most of wealth=50% > middle 40% > bottom 50% -at the end, middle 40% own greater share > top 10% > bottom 50%

how did this social insurance policy reduce the efficiency of insurance?

-benefits are only accumulated in formal sector -contribution to pension plans are low (so if you pay $80 to your pension account, the gvmnt will pay $20 or something and then you now have $100 in your pension account)...so contribution on your part was low

why did inequality decline from 1996-2010 in latin americaaaa

-changes in the wage distribution -*return to schooling increased in 1980s* (consequence of pop more skilled=more labor income going to bottom of the distribution) -as shown by the graph, the *% of pop below the poverty line decreased a lot*...share of labour income at the bottom of the distribution increased accounts for 1/3 to 1/2 of inequality reduction -*institutional changes: minimum wage, social insurance, cash transfers*

why do we tax corporate profits?

-companies belong to shareholders -dividends are taxed when distributed -*legal argument for why we should tax corporate profits: corporations belong to households and households are taxed when they receive benefits.* Shareholders are taxed when the profits are taxed and taxed again when the profits are generated-->so maybe this discourages investment...argument used: a shareholder will be taxed in the future when you sell your shares (tax on your profit)

to capture the effects of this program on poverty and inequality, gertler (2004)

-compared eligible and potentially-eligible households -Random selection of 320 villages out of 505...they realized it was more expensive than they thought it would be so they only ran it in 320 villages -ran a regression on diff outcomes such as child morbidity, height, and anemia and looked at how it related to the PROGRASE variable

what does the graph showing the share of income at the top 10% show as it evolves over the 20th century?

-for the US and GB, the top 10% owns about 40-50% of the income during the time before the 1930s and then they both take a big dip from 1940-1980. then they both go back up again to original levels. -for france: top 10% also took a major dip around the same time but they made a slight comeback in the 60s and then took another dip until 1980s and have continued to fall ever since -the US at the end of this time had the highest share of income owned by the top 10%, GB second and france last

for share of income at the top 10% and at the top 1% over 1900-1940, what do the graphs show?

-for top 10%: share of income owned in the US increased over this time and france decreased -for the top 1%, share of welath for GB and france decreased while the US also decreased but at a smaller rate

what are some of the ways to measure inequality

-gini index -share of the pop below poverty line (like % in ea state in poverty=poverty rate) -share of pop between certain cutoffs (ex/ in poorest fifth, in richest fifth) -lorenz curve -human development index -atkinson index

what's the deal with trying to tax those who choose to put most of their wealth into houses as investments?

-harder to tax houses --so tax policies are hard cuz houses are very hard to tax (the returns on a house is the rent you don't have to pay)...but if you put that money in any other investment you have to pay a tax for that so your ability to consume is higher. For a house you don't get taxed on its dividends but you do pay tax on the amount you sell it for

gimme a quick summary of the evolution of the concentration of wealth from 1800s-2010

-historically, societies experienced high levels of wealth concentration (more inequality, bc the top decile had most of the money) -however, this changed drastically over the 20th century and there were sharp decreases -several theories have been proposed regarding wealth accumulation

what's the type of data that a lot of these inequality studies are based off of? what's the problem with this?

-household surveys -problems: there are comparability issues. across countries and over time. and in household surveys there exists a response bias

what are some of the probs with measuring income here?

-if there's an income shock, the child will also feel the effects of that shock. Like the death of a parent for example...basically a child's income can be changed by many things that are out of their control -it can be shocked by changes in welfare reforms, job market shock (parents lose job, affects child's income-->father: negative effect on child's income, mother: positive effect on grades), divorce, death of a parent

goal of tax policies focused on low income fams: (=earned income tax credits)

-improve living conditions -keep individuals in the labour force

what does the evolution of taxation look like rn?

-in some countries like the UK and US, tax rates of the top incomes have decreased by A TON: -in the UK (in just 10 yrs: 83% → 60% → 40% ) -in the US: 70% to 35% -some countries have littler decreases: norway and canada -some have no changes: germany, switzerland, spain

why do Auerbach and Hassett (2015) say that housing capital is v relevant?

-increases in housing stocks -increases in housing values -substantial tax benefits for owner-occupied houses - disruption in capital markets

what was the long run effect of this program?

-individuals treated for 5 yrs started when they were 10 have acquired an extra year of education -but the older you were when the progresa program came along, the less you benefited -Ppl that were treated for a shorter pd of time: smaller effect, but still a large effect for ppl treated for just 2 yrs -We observe a positive effect for boys and a larger effect the longer you were in the program -For girls, those that were treated the most, we observe significant effect but a smaller magnitude -For those girls that weren't in it that long (older girls) it doesn't seem that it worked that well. It's the older girls that are dropping -overall observe a positive effect on children's education

what does piketty say about his second law that r>g?

-it means returns on capital (r) will grow faster than the economy (g) -he says that since 1970, r>g. meaning that the growth rate of the economy (=g) has been decreasing in the nine countries that he surveyed while the savings rate (=investment rate...cuz remember in macro bandy said S=I) has hardly changed

to see what effect the EITC had on labor force participation, etc. (which also changed subsidy rate & increased cut-off incomes) they ran a regression and found:

-looked at low educated women with children vs low educated children without children -we see the treatment group changes quite a bit but the ctrl group doesn't rly change. We find after the change, women with children were 2.4% more likely to participate in labor force

what are some potential effects of EITC?

-may reduce hours worked -but also may increase the number of hours worked

what is a progressive tax system?

-meant to decrease inequality in terms of income inequality...leftover after taxation will just be effective inequality -ppl at bottom of distrib contribute smaller % of their income (& receive a larger share of the benefits) than ppl at the top of the distrib -tax rate (or the share of income that is contributed) increases with total income

what's the deal with the relationships between intergenerational mobility and anglo saxon countries and then with women?

-mobility + angle saxons: anglo saxon countries usually present a lower level of mobility than nordic countries -women experience a lower level of intergenerational correlation than men, particularly in the US

in the job quality chart, which level of quality jobs are increasing in number of positions available?

-more jobs are eign created in very low quality jobs (level 1-2) which isnt rly explained by skill biased tech change. (maybe jobs themselves changed here?) -in the middle quality jobs (quality 3-8), less jobs have been created (maybe this means the middle class spread out to the low end and high end jobs? -in high quality jobs (levels 9-10), the number of jobs has increased. this is consistent with the skill biased tech change theory

what important econ things happened during the WWI

-no significant decrease in inequality -the UK lost a lot of overseas assets -but there were no major re distributive effects caused by the war -during the Inter-war period: no generalized trend of inequality decrease (except for france and netherlands)

what do the estimates of intergenerational mobility between men and women in US UK and nordic countries show?

-numbers are on the lower side than it was for fathers and sons. Seems to be more mobility across fathers and sons than for mothers and daughters. Easier to compare wages for men over time because the factors they face over time seem to be more stable for men than for women -for women, for the Nordic countries we see lower values but then higher but closer values than men for women in US. In the US, high earning women don't participate in the labor market, but lower end ppl in the UK don't participate in the labor market. But all high-potential earning men are in the labor market.

what happened in the evolution of inequality in developing countries?

-overall gini coeff has slightly increased from 1980s-2020 -but there are substantial difference by region. for ex/ gini coeff is higher for latin america and sub saharan africa > middle east & north america and east asia and pacific > south asia and eastrn europe and central asia

what are the diff ways in which wealth can be taxed?

-periodically=the wealth tax -at transmission from one person to the next: inheritance tax

using the Unified Approach, (Galor and Moav 2004) found that the main force behind economic development is...

-physical capital: is as equally productive as human capital but is independently of concentration of ownership -and human capital (but human capital is constrained by psychological limits, human capital accumulation will be greater if widely distributed in the society...more equal)

what were Conditional Cash Transfers (CCT) programs?

-programs aim to alleviate poverty through cash transfers only if certain conditions are met -conditions often had to do with children: school attendance, vaccination, nutrition, etc.

during WWII, what happened to the share of wealth of the top 1% and the share of income at the top 10% in GB. france and the US? (1940-2020)

-share of wealth at the top 1%: at beginning, GB>US>france at the end (2020), US (around 0.4%)>France>GB share of income at top 10%: at beginning: US (0.45)>france>GB, at the end: US>GB>france

what does the graph that shows differences in income inequality pre and post tax and gvmnt transfers? (2005 vs. 2010)

-shows countries have varying levels of inequality, but they also do very diff things in terms of re-distribution goals -in 2010, we see higher levels of inequality

summary: what factors explain beta then?

-variation through genetics -causal effects: *OLS tends to overstate relevance of parental characteristics and the drivers are still unclear lol* -since it's not all determined by genetics,and everything else that isn't genetics is very important as well so there is room for policy to be implemented in this sense.

what's the game changer for superstars these days?

-with technology, they're able to reach more people (greater market) around the world than they ever were able to reach before. they earn a greater magnitude of money from this -data shows that superstars can receive a pay that is MUCH higher than those who are just slightly less talented -superstars are much more common in certain sectors (like entertainment sector for example)

what is Noncontributory social insurance (UK - social assistance)

-you don't have to contribute to it -insurance provided out of general budget -covering (usually) individuals not covered by contributed insurance -expanded the coverage of pensions, health insurance substantially

what is capital income= to?

1-(income earned by wages)

what are some political things that happened in the second half of the 20th century?

1. *in the US*: female labor force participation, federal expending in the new deal, progressive tax system 2. *in the EU*: large and sustained decrease in inequality after WWII due to expansion of welfare state (pensions which increased the income among the older pop, the population was aging, and these welfare changes worked against market forces during the second half of the 20th century. changes in the labor market: there was a dispersion of wages. and in capital markets: there was a dispersion of capital income

what are piketty's three laws of capitalism?

1. *r(s/g)=capital share of national income* 2. r>g 3. r>g has an impact on inequality

what are some critiques of pikkety's third law of capitalism? (that r>g has an impact on inequality

1. *what about labor market inequality?* labor income can always be invested don't forget pikkety u dumb as$...and what about the patrimonial middle class (started through labor income)...like some ppl are making a lot of money in the labor market so that they have some left after consumption to reinvest. 2. *for income growth of capitalists to be larger than income growth for workers (who get their investment money from the labor market), it relies on these unrealistic factors:* r>g (doesn't hold often because the conditions needed to make this happen aren't reasonable), constant interest rates (doesn't happen), high saving rates of capital owners (this condition is probably higher than what people actually save in real life) 3. *piketty says that r and g are primitives of the model, but there are many different things that determine r and g*: they re likely to react to policy, technology, stock of capital. 4. *what about the role of social mobility?* he doesn't give enough credit to social mobility, because it can greatly impact his theory (because the probability that someone in the top 1% has a child that will also be in the top 1% is not that high) 5. *the emphasis on r>g just leaves out other important factors like institutions and politics*

what are the types of social insurance? (2)

1. Contributory social insurance (UK - social insurance) 2. Noncontributory social insurance (UK - social assistance)

summary of inequality evolution in the UK:

1. Highly concentrated wealth before First World War (top 0.1% owned around 1/3 of wealth, top 1% owned around 70% of wealth) 2. 1914-1979: large decreases in wealth concentration (top 0.1%: 1/3 → 7%, top 1%: 70% → 18%) 3. Post 1980: stop to decreasing tendency

what are some major world events that shaped income inequality in the 20th century?

1. WWI (1914-1918) 2. the great depression 3. WWII (1945-1949) 4. post WWII 5. great recession 2007-2010

for the labor market to play a relevant role in the level of inequality...

1. a large share of the total income has to come from labor income 2. labor is the most important source of income for the majority of the population 3. there has to be a large variation in labor incomes

what qualities of H(.) make welfare improve?

1. increasing (welfare improves because there's an increase in yi while all other yj stay constant) 2. concave (welfare improves because there are transfers from the richer to the poorer

unified approach continued: 1. in the early stages of development, what is most important? 2. what's more important in the later stages of development?

1. physical capital accumulation is most important at the beginning and enhances development: labor is abundant and physical capital is scarce, return to physical capital is higher than return to human capital 2. then in later stages, human capital accumulation (*when physical capital is above a certain threshold) human capital becomes highly complementary with physical capital* and when human capital increases, so does growth

what are the following relationships: 1. y (income) and I (level of investment) 2. G (gvmnt expenditure on human capital) and I 3. alpha and I 4. thetaXp (marginal product of human capital investment X return to human capital) and I

1. positive rel. (y and I) 2. negative rel (G and I) 3. positive rel (alpha and I) 4. positive rel (thetaXp and I)

in the UK, earnings from 1970-2010 for the 90th percentile male wage were _____ greater than the 90th percentile female wages

3.6 to 3.7 times greater for men

effect of top tax rates: taxes cut by 10% → gross income increase by ____%

4.6%

conclusion of EITC type measures

EITC-type of measures have been successfully used to improve labour force participation and living conditions

what is the lorenz curve?

Graphical representation of the distribution of income in the population, its deviations from the 45 degree straight line (full equality line) show how much inequality is present

what if the principle of transfers isn't satisfied (income is transferred in a way that changes the ranking of individuals)

If the principle of transfers is not satisfied, Lorenz Curve does not deliver a clear ranking of income distribution in terms of inequality

results of siblings correlations:

Siblings share more genetic components & childhood environment than the rest of the population if intergenerational elasticity of earnings is driven by genetics or childhood environment, siblings earnings should also be strongly correlated -they found that: Siblings earnings are correlated: 0.4 for US, 0.2 for Norway -you still have a major correlation between you and rando ppl than you do with just your sibling

what is the human development index?

The HDI *was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone* and it is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living

what is the atkinson measure of inequality most useful for?

The measure is useful in determining which end of the distribution contributed most to the observed inequality

what are the most popular household surveys used in developed countries?

UK - Family Resources Survey, British Household Panel Survey, Understanding Society US - Current Population Survey European Union - EU-SILC

what si the general formula for a social welfare fxn?

W=sum of H(yi)

we want to know what's driving beta (=the correlation between parent and child earnings)

We want to know this because maybe there's policy we can use to change the value of beta. But maybe nothing will work cuz it's just genetics that affects beta....this is why it's important to find out

what's the inequality possibility frontier (IPF)

a function that relates income per capita to max levels of "bearable" inequality

what does choosing H(.) depend on

a person will choose H(.) dependent on their judgement about inequality

if investments in human capital are more productive (high theta value), children of richer parents who invest more have an _____

advantage -this, once again, leads to lower intergenerational mobility

in what type of companies are they seeing incentive pay becoming a thing?

all of the top firms, doesn't matter if they're private or public. -incentive pay is just as large in publically traded companies-->so it's not only in the financial sector

what is the principle of transfers with the lorenz curve?

any transfer of income from a rich to a poor person is an improvement if it leaves the identity of the richer person unchanged

what rate has r historically been at?

around 4-5%

why does the gvmnt provide this type of social insurance? it seems like it would be supa expensive for them to cover bc for example, breadwinner dies, now they have to pay for all the children that this breadwinner used to provide for

because if ppl just bought in the market, the premium would go up a lot bc the risk of unemployment is pretty high. No one can observe how hard working you are. So it's likely that only ppl that have high risk of being unemployed will buy unemployment insurance from the market and so there would be no market.

in the uk, occupations that are now in high demand came from the ____ and the ____ of the distribution

bottom and top

give a summary of the unified approach model claims

capital plays an important role in the growth of the economy at the beginning stages (this is when inequality is helpful since it allows for capital accumulation), but then after capital reaches its threshold level, human capital investments now contribute to growth (but here, inequality is bad for human capital accumulation), and then in the stage 3 (last stage) everyone can bequest (leave money for the next gen) optimally since no one is constrained and at this point inequality doesn't play a role in development

some transmissions from parent to child can be affected by inequality. in what ways?

childhood investments, family connections, aspirations are affected by this

why are there so many measures of inequality?

convenience and data availability

Wealth & Corporative tax have been experiencing a _________ trend....

declining, and seen multiple advocacies for re-instatement

the way wealth is distributed from changes in r-g will also depend on

demographic choices, *inheritance laws* (which benefits those who receive income/wealth from a deceased relative), random shocks

lifetime earnings is a problematic thing to measure. so ppl look at alternative variables: prime variable measured is ______. why?

education -It's highly correlated with earnings. Ppl usually remember how many years of education they have and it doesn't seem to change w age...basically a good variable to measure. It also doesn't have transitory shock. One issue is that education reacts to many other things as well -Transmission of education correlates in a similar way than earnings with returns to education and government expenditure

how can policy affect the playing field of opportunities? (has to do with gamma=returns to policy...the higher the value, the more progressive the policy is)

education investments, pre-education investments, health

Globalization has severely affected the _______ of certain taxes

efficacy (=ability to produce the intended result)

if lambda is large (returns on connections/who you know),

endowments are strongly inheritable, and there is lower intergenerational mobility

Redistributed policies are concerned with ex-_____ outcomes, rather than with ex-_____ conditions

ex-post, ex-ante

what are some of the top sectors where bonuses (incentive pay) is a large share of their percentage wage bill?

finance, business services, health services, construction, transport and communication, manufacturing, public administration

how is data from earnings retrieved?

from employers

how is data on wealth collected?

from household surveys, administrative data, estates left at death

What mechanisms underlie the correlation between parent & child earnings?

genetics childhood environments human capital investments

what does Piketty say will happen to r and g by the end of the 2100?

he says they'll converge back to their steady states where r>g

intergenerational mobility is low when returns to education (p) is ___

high

studies did show that higher income families in the US have _____ enrichment expenditures on their children

higher

what does the size of the efficiency loss from taxes depend on?

how we distort the choices through taxes.-->how bad the firms need certain numbers of workers (elasticity of workers needed...if they rly need more workers, they'll just take a profit loss) -how much individuals change their behavior will determine how much efficiency we'll lose -*Income taxes may cause reduction of hours worked, reduction of effort, reduction of labour force participation, reduction of savings* *-how large these changes are will determine how much efficiency is lost and the size of the tax revenue*

mono-zygotic twinz=

identical twinz

how do you compare 2 distributions, A and B, that have the same mean

if A's lorenz curve dominates B's lorenz curve, then social welfare W of A is greater for any choice of H(.) that is increasing and concave

what was the deal with the trends of total wealth share by the top decile in Europe from 1810-2010?

in most european countries (great britain, france, and sweden) the share of total wealth owned by the top decile in these countries was 80-90% in the 1800s, but then by the end of the 2010, total wealth owned by the top decile was around 60%ish

what kind of jobs does technology substitute human labor for?

in routine tasks because they arent good at reacting to the aspects of non-routine jobs

what is some other data used for inequality measures?

income tax data, earnings (income), wealth

what does globalization have to do with tax competition?

increase mobility of corporations/capital/wealth → increases tax competition -*supply of corporations/capital/wealth is now elastic* since they can react easily to increases in tax and just go move to a diff country

what is the gini index?

inequality among values of a frequency distribution (like levels of inequality) -Numerical measure of inequality derived from the Lorenz Curve -it's the area between the full equality 45 degree line and the lorenz curve (deviation from the 45 degree line)

there is an increase in the number of jobs at the bottom of the distribution but this __is/isnt__ as great of an increase as the top distribution of job growth

isnt

what does high levels of inequality do to future generations

it damages economic mobility by damaging opportunities for the next generation

what does it mean that there's no such thing as a free lunch?

it isn't possible to get something for nothing.

what does it mean when people say that r and g are primitives of the model

it means they're agents/variables that have bounded rationality

how quickly does this mechanism play out thought?

it might take a long while to play out especially in open economies (where trading can occur)

so what is social insurance?

it protects against sickness, unemployment, death of prime money earner in the fam, poverty in old age

what is the top decile?

it represents the top 10% of the population included in the data

what did the south african white to black ratio of wages in mining and white to black ratio of income per capita as shares of national income show?

it showed that the lines went in opposite directions...shows that this might not be the best meausre to use to see inequality trends. a better picture was painted by using the gini coefficient to mirror the trends in the ownership of how large the share of national income is for the top 5%

what's the purpose of the great gatsby curve

it shows that more inequality is associated with less mobility across across generations

what does the graph showing the relationship between the graduated/non-grad wage differential?

it shows that the difference in wage has risen over time, especially recently. it's at 1.64 rn

EITC (earned income tax credit) is paid only if the individual reports _____ ______

labor income

people get the largest amount of their long-term income from the ____ _____

labor market (wages)

small changes in r-g can lead to ___ changes in wealth inequality (typically the larger r-g becomes, the more wealth inequality exists)

large

what are some notable econ events that happened in WWII?

large inequality decrease, war destruction and occupation, post war settlements, culture of solidarity (mutual agreement/support among ppl)

consistent fact found in economics: high levels of inequality are correlated with ___ levels of economic mobility

low

unified approach says: credit constraints + inequality = ___ investments of human capital. therefore, what is their summary?

low inequality is harmful for economic growth

what economically significant things happen from the 1990s-2000s?

market forces continue to push levels of inequality up, the welfare state did not keep up to keep inequality low (decrease in redistributive power of public sector and sharp decrease in cash transfers like unemployment benefits)

even in the steady state, there will be some _____ in the distribution of wealth

mobility

what's the most frequent progressive tax system method?

most frequent tax system is through a system of brackets...ppl in diff brackets are taxed at a diff income tax rate...higher income=higher tax rate of your income paid -increasing marginal tax rates

just name some potential policy interventions that could be used to tackle inequality proposed by Atkinson 2015:

national pay policy statutory minimum wage national savings bonds minimum capital endowment child benefits renewal of social insurance more progressive tax structure Earned Income Discount proportional or progressive property tax ETC YO

what would happen to the long run level of wealth inequality if there is an unequal access to ifnancial returns?

not everyone would get the same rate of returns because institutions/resources/knowledge you can access is very different

what's wrong with the theories like superstars, skilled biased tech change, globalization and labor market institutions?

not one of these theories can explain everything that is happening

what was the overall impact of these conditional cash transfer programs?

overall positive effects, responsible for around 1/4 of the decline in inequality -did have some problems tho (next note card)

what was the goal of the conditional cash transfers programs?

poverty alleviation while increasing beneficial behaviours like education, nutrition, prenatal/postnatal health -you're encouraging generational behaviors: they have pre-natal checkups for women, check to make sure the children are healthy...these are parents making choices for their children...try to make the human capital production fxn more productive...alleviating the poverty and hopefully we're generating a higher level of human capital for the next generation.

"Extraction" appears to have been higher in _____-industrial societies

pre-industrial

why are there large increases in CEO pay also?

principal-agent problem: ex of this: there's a shareholder and a manager. they both have different objectives but the shareholder can't actually observe the actions of the manager. so this is why people often make contracts that are contingent on performance (in comes the incentive pay) -*change in social norms: the social norm that it's not okay for some people to be making all the money has def declined*

all modern tax systems are characterized by its __________

progressiveness

when the share of capital in the economy increased, what happens to r(=the rate of return)?

r, the rate of return decreases

what are some of these endowments that you can get from your connections/parents?

race, innate ability, connections, family commodities

what did the earnings graph for men in 90/50 ratio and 50/10 ratio show?

recently, there's a flattening out of inequality -it's just the top of the distribution that's going far away from the median

so if economy is in steady state (there's a big difference between r and g), will have higher inequality but this isn't what we observe in this graph. what do we observe?

results are mixed. or it's actually the opposite of what piketty suggests

when there's an increased demand for skilled workers, the education wage premium (p) ____

rises

what is extraction?

share of income above survival level that is owned by the richer part of society

accumulation of physical capital (+ technical progress) → physical capital complementary with ___ labour

skilled

why do people sometimes pay their workers/managers A LOT of incentive pay?

sometimes they pay more than is needed to improve marginal productivity because you cannot observe the work they're doing --> this is the *principal agent problem*

what's a straightforward way of affecting the market forces driving (up) inequality

taxation

what's the skill biased tech change theory

tech change has made skilled workers more productive than non-skilled workers

economic factors have also increased the productivity at the top of the distribution. what are some of these factors?

the earnings of superstars are disproportionately large -technical change -globalization -things are produced on a greater scale

what would happen to the long run level of wealth inequality if growth slows down?

the economy would converge towards a steady state, but there would be a high level of wealth inequality

summary of the criticisms against piketty's third law of capitalism that r>g determines inequality

the evolution of inequaltiy cannot be understood without bringng economic and political institutions into the picture

so then what did piketty claim in 2015?

the interaction between (r-g) and institutions and public policies determines inequality -broke it down... 1. before WWI: says there were similar concentrations of wealth across europe (means there's a large r-g gap, which also means there was more inequality) 2. after WWI: there was wealth destruction from war and higher taxation 3. now in the 21st century: there is a *global tax competition* (tax rate is pushed down in an attempt to keep businesses in their area since some capital is very mobile)...there's a clear *trend in the reduction of taxation*, *economic growth slowdown*, *unequal access to financial returns* (limited resources/info available to all people)

what does the 50/10 ratio represent?

the median

education reforms also palyed a role...

the number of years ppl had to be in school changed varying state by state so some parents had to be more educated than others...and usually educated parents have educated kids -Comparison between children of affected parents and unaffected parents can be informative of the role of parental education -Strong effects of mother education -Little to no effects of father education

what were some problems with these conditional cash transfers/

the quality of the services received (like education) wasn't that great sometimes -*decreases the incentive to work* (some ppl don't want to choose a job that goes over the limit for eligibility for these cash transfers if it doesn't pay that well which is bad) -*decreases the incentive to work in the formal sector (cuz then you would have to make lower contributions toward insurance)* -despite all these probs tho, they did seem to work here

when r>g, what happens with the share of capital in the economy?

the share of capital in the economy increases

the more different r and g are, the more likely it is that the economy is in ___ _____ ____

the steady state

what does bell and van reenan say about changes in wages at the top of the distribution in the UK from 1970s-2010? but what happens when you put the data into log earnings?

the top decile's (=top10%) share of total earnings increased by 10% (went from 22.4% to 32.4%) -top 5% increased by 8.9% -top 1% increased by 6% -BUT when the data is put into log earnings it looks a little different. the top decile only gains 5.9% but something that's missing from this data is the role of incentive pay (=pay for performance) which has gained more and more weight over time

what does 90/50 ratio represent?

the top of the distribution

what's a total wage bill?

the total amount paid in wages by a business establishment or industry usually figured on an annual basis.

conclusion of some of the above: inequality strongly affects what parents transmit to ____ ______

their children

what would happen to the long run level of wealth inequality if taxation of capital changes?\

there will be a lower "r" (rate of return on capital) -it'll be harder to reinvest to keep share

what does the graph of difference in average income tax rate of single persons show?

there's quite a bit of variation among countries that are otherwise pretty similar. this just shows how diff policies can have v diff effects on inequality

what was significant about the years from 1000-1500?

these were the years that we were in steady state (before the wars/*destruction of capital* and other economic reasons kicked us out of that steady state) -back when r (net rate of capital return) was consistently higher than g (growth rate of the economy)

Why does the author compare pre-intervention descriptive statistics in this study?

they first check to make sure this actually was a random lottery. They look at treatment and control group before the whole thing was implemented and find for most things there is no evidence that these groups are diff (means they'll be similar for things we don't see)

using the classical approach, what did Kaldor (1955) and many others find about the relationship between inequality and growth?

they found that it was beneficial -marginal propensity to save increases with income. inequality allows higher concentration of income which increases capital accumulation -they say it helps the development process

what's the deal with superstars in the banking sector?

they have a greater ability to reach more markets because there has been an increase in the relevance of the financial sector (and the usperstars here are getting a huge amount of the total increase here) -like 60% of the increase in the income of the top decile is going to financial workers -in the financial sector, incentive pay is huge here! There's a large share of workers receiving bonuses

the financial sector seems to now be more susceptible to superstars than ever before. why is this?

they have better access to info from other parts of the world and can use their financial instrument from almost anywhere

using the credit market imperfection model, Galor and Zeira 1993 found a diff relationship between inequality and growth...

they say that inequality is harmful for growth -Credit market imperfections increase the cost of human capital for poorer individuals -individuals can become skilled workers (at a cost, with higher wage) or unskilled workers (no cost, lower wage) -in absence of credit constraints (or other market imperfections) → optimal choice -with credit constraints → suboptimal choices -Inequality increase the share of individuals that invest sub-optimally in human capital (which reduces human capital accumulation)

BUT what if g>r? this happened from 1950-1970s

this means there are pretty low rates on capital returns -this change also *occurred at a time that we observed wealth inequality increase.* -when g>r, it is harder for people to keep their share of the wealth in the economy because this requires that you invest 100% of your capital returns + the wealth you earn from the labor market (bc let's say g=.4 and r=.2, this means you have to reinvest 200% of your capital returns to keep your share...not possible) when r>g, let's say r=.4 and g=.2, g/r=.5 which means that you have to invest only 50% of capital wealth to keep your share of wealth in economy

how can pre-industrial inequality be measured?

though social tables: compilations of data from social groups/classes such as "labouring ppl/servants" and "cottagers and paupers" -these groups are ranked by income and the population share of each group is estimated -then you can look at: within group inequality, and between group inequality

what does it mean when r>g? (this is how it usually has been)

to keep your share of the total economy, it doesn't take as much work to keep that share if you keep reinvesting some of your wealth (you should re-invest g/r of wealth)

what did Behrman and Rosenzweig (2002) conclude about these twinz studies?

twins do share genetic info. -mono-zygotic twins will transmit the same genetic info "endowments" to kids -Positive relation between mother/father and child education (OLS) -Dismisses when comparing children of twin mothers with different education Constant when comparing children of twin fathers with different education -SO, results aren't that robust and other studies find diff results -relies on way too strong assumptions: Genetics don't determine everything (e.g., family orientation) and there are differences starting at birth weight -children of twin mothers don't seem to be more educated...they have the same educated regardless of who's the mother (the difference in education doesn't seem to have an affect on the children) -this isn't what they observe w twin fathers. If one twin is more educated than the other, their child will be more educated than the child of the lower educated twin father

post-industrial revolution scenario, physical capital complementary with ___________ labour

unskilled

what do you need in addition to the progressive taxation to best tackle inequality?

we also need an expenditure policy that ensures a certain amount of greater distribution to the lower classes cuz taxation systems alone don't guarantee long term effects on income inequality

what's the purpose of the siblings correlations on this topic?

we want to see if the correlation between siblings is higher than most ppl cuz they seem to share all these things that might be relevant to the beta outcome

which outcomes of ineqaultiy do we measure?

welath, income, consumption

what is job polarization?

when jobs at the middle class tend to disappear relative to jobs at the lower and higher parts of the distribution

but the gvmnt provides this social insurance in a cumpulsory way...what does this mean?

you have to pay contributions to state pensions, NHS, etc.