EC 495 Final

tax incidence

"Tax incidence" refers to the study of who bears the tax burden. The ultimate distribution of the tax burden will depend on the elasticities of supply and demand. The economic agents who are relatively more inelastic in their behavior will end up bearing relatively more of the tax burden. Thus, the true tax incidence may differ from the "statutory incidence".

What potential solutions have been proposed to Social Security's long-term funding problem?

(1) increasing the maximum level of earnings that are taxable under the payroll tax, (2) increasing the payroll tax rate, (3) further increases in the retirement age, and (4) benefit reductions in a variety of forms.

According to the calculations by Corak, the intergenerational elasticity of earnings in the United States is about

0.5

If all the income in a country were to be received by one household, that country's Gini ratio would be

1.0

Personal Responsibility and Work Opportunity Reconciliation Act

1996 made a large number of significant changes in the old "Aid to Families with Dependent Children" program, which is now called "Temporary Assistance for Needy Families" (TANF). removed the federal entitlement, and replaced it with a series of block grants to the state governments. Thus, the focus of decision-making power was shifted away from Washington to the state capitals. In addition, the amount of the federal block grants was substantially smaller than the amount that the federal government had previously given to the program, so that the overall level of program spending was reduced. reduced food-stamps benefits, and sought to deny food stamps and Supplemental Security Income benefits to legal immigrants requires that most poor adults should find a job within two years of receiving aid. (This requirement could be relaxed if the youngest child is under the age of 5.) established a five-year lifetime limit on aid coming from the federal block grants gave states greater freedom to use private contractors to provide services to the recipient population.

We discussed one study that found that the decrease in the strength of labor unions can explain about ______ of the increase in wage inequality for men in the United States

20%

In their paper "The Fading American Dream," Raj Chetty and his co-authors find a substantial decrease in absolute intergenerational mobility, ie. there was a decrease over time in the fraction of people who earned more than their parents. Chetty and his co-authors estimate the proportion of this decrease in the absolute mobility that was due to two components: (i) the slowdown in the rate of economic growth and (ii) the increase in inequality. What fraction of the decrease in absolute mobility do they attribute to these two components?

29% to slower growth 71% to greater inequality

In 2017, what proportion of the US population fell below half of the poverty rate? What income does this represent?

5.7% this is the group with household incomes below about $6000 per year (i.e., $500 per month) for a single individual, and below about $12,000 per year (i.e., $1000 per month) for a family of four.

In 2017, for full-time, year-round workers in the United States, the ratio of the earnings of the median woman to the earnings of the median man was about

80%

During the early 20th century in the United States, the high school curriculum underwent dramatic changes. Which of the following is/are a subject that was given more emphasis in the new curriculum A. typing B. Mechanical drawing C. Latin

A and B-- typing and mechanical drawing

Which of these regions contains many of the most unequal countries in the world? A. Latin America B. Africa C. Western Europe

A and B. Latin America and Africa

Suppose that, in a study of wages and earnings differences by gender, John Q Economist finds that the "unexplained residual" has decreased. This could mean that A. Discrimination has decreased B. There has been a decrease in other, unmeasured labor-market differences between women and men C. The labor market premium for a college education has increased

A and/or B Discrimination has decreased and/or there has been a decrease in other, unmeasured differences between women and men

For full-time year-round workers in the United States, we can calculate the ratio of the earnings of the median black man to the earnings of the median white man (call this the B/W ratio). We can also calculate the ratio of the earnings of the median black man to the earnings of the median non-hispanic white man (call this the B/NHW ratio). In this regard, which of the following is/are true? A. The B/W ratio is larger B. The B/NHW ratio is larger C. The difference between the two ratios has been getting smaller over time

A. The B/W ratio is larger

According to the calculations by Davies, St-Hilaire, and Whalley, which we discussed in class, lifetime income (the income over the lifetime, for everyone born in a particular year) is distributed __________ annual income (the income in a single year, for all of the people who are alive in that year)

According to the calculations by Davies, St-Hilaire, and Whalley, which we discussed in class, lifetime income (the income over the lifetime, for everyone born in a particular year) is distributed more equally than annual income (the income in a single year, for all of the people who are alive in that year)

According to the calculations of Bourguignon and Morrisson, income inequality in the world in 1820 was primarily the result of _________ and income inequality in the world in 1950 was primarily the result of ___________

According to the calculations of Bourguignon and Morrisson, income inequality in the world in 1820 was primarily the result of within-country inequality and income inequality in the world in 1950 was primarily the result of across-country inequality

According to the calculations of Piketty and Saez, the share of income received by the top 1% of households in the United States ______ in the 1940s, and _________ since the 1970s

According to the calculations of Piketty and Saez, the share of income received by the top 1% of households in the United States decreased in the 1940s, and increased since the 1970s

How did Affirmative Action policies start?

Active federal anti-discrimination efforts began with an Executive Order by President Kennedy in 1961, and were expanded by an order of President Johnson in 1965. The early efforts were restricted primarily to an attempt to insure that federal contractors did not practice racial discrimination in hiring. In spite of the fact that there was not a great effort to enforce these orders, blacks did improve their shares of employment in the contractor sector. The enforcement effort was increased in the 1970s. However, after 1980, it appears that compliance reviews were much less thorough. As a result, black employment in the contractor sector actually declined.

All else equal, an increase in the supply of highly skilled labor will lead to a(n) _____ in earnings inequality, and an increase in the demand for highly skilled labor will lead to a(n) _____ in earnings inequality

All else equal, an increase in the supply of highly skilled labor will lead to a decrease in earnings inequality, and an increase in the demand for highly skilled labor will lead to an increase in earnings inequality

In the early 20th century, especially between 1910 and 1940, the rate of high school completion increased dramatically in the United States. Which of the following is/are a factor that contributed to this increase? A. states adopted "free tuition" laws, requiring school districts to pay for high school for their students, even if the district did not have a high school of their own B. The internal combustion energy and other innovations led to the development of the school bus, which made it possible to transport students to school over long distances C. States adopted compulsory attendance laws

All of the above

The fraction of the working age population in the United States that is receiving Disability Insurance (DI) benefits has increased substantially since the 1970s. Which of the following is/are a reason for this? A. People over the age of 50 are much more likely to qualify for DI than people under 50, and the numerous Baby Boom generation began to reach the age of 50 in the 1990s B. One can only qualify for DI benefits if one has an earnings history. As women's labor force participation increased, more women became eligible for DI C. Mortality rates have decreased, so there has been an increase in the number of DI recipients who continue to receive benefits, instead of dying

All of the above

What will the rate of return on Social Security be, on average, for generations born after the start-up generation?

Although the startup generation receives a windfall, subsequent generations do not. If the tax rate remains the same from generation to generation, on average, the "rate of return" on Social Security contributions for generations that are born after the startup generation will be equal to the rate of growth of the economy.

Among other things, Sala-i-Martin studies the changes in the Gini Index for the entire world from 1980 to 2000. He finds that, if we leave China out of the calculations, the world Gini ___________ during those two decades; if we include China, the world Gini ___________

Among other things, Sala-i-Martin studies the changes in the Gini Index for the entire world from 1980 to 2000. He finds that, if we leave China out of the calculations, the world Gini increased during those two decades; if we include China, the world Gini decreased

What were the effects of the Personal Responsibility and Work Opportunity Reconciliation Act?

As a result of the 1996 law, the number of people receiving TANF benefits dropped dramatically. According to research by Schoeni and Blank, many of the affected households actually had some increases in income, despite the changes in law. A large part of this increase in incomes appears to be due to increased earnings by other household members, which may mean that the boyfriends of welfare recipients have been forced to work more.

For the United States, we can calculate the ratio of the earnings of the median woman to the earnings of the median man for full-time year-round workers. This ratio is less than 1. We can also calculate the ratio of the earnings of the median woman to the median man for all workers. This ratio is also less than 1. Which of the following statements is/are true regarding the trends in these ratios in the last 40 years? A. Both ratios have decreased B. Both ratios have increased C. The difference between the two ratios has decreased

B and C Both ratios have increased, and the difference between the two ratios has decreased

According to Gary Becker's competitive theory of discrimination, employers have a "taste for discrimination" which is represented in the model by the "discrimination coefficient", di. If the theory is to be used to explain adverse labor-market outcomes for blacks, it must be true that many employers prefer to hire whites, so that their di is greater than zero. This theory suggests that the size of the discriminatory wage difference between whites and blacks A. will be larger if blacks have more education B. Will be larger if the "marginal discriminator" has a stronger taste for discrimination (a higher value for di) C. Will be larger if the size of the black population is larger

B and C only

In class, we discussed research by Becker, Philipson, and Soares (BPS). They develop a concept called "full income," which is based on both income and life expectancy. They find that, from 1960 to 2000, full income for poor countries grew more rapidly than full income for more affluent countries. This was A. Mostly due to increases in income B. Mostly due to increases in life expectancy C. Due to increases in income and increases in life expectancy to about the same extent D. Mostly due to increases in income between 1960 and 1977, and mostly due to increases in life expectancy after 1977

B. Mostly due to increases in life expectancy

The "Great Gatsby Curve" indicates that countries with more inequality tend to have A. longer life expectancy B. Less intergenerational mobility C. Shorter life epectancy D. More intergenetational mobility

B. less intergenerational mobility

MECRs for cash-grant programs

Ballard's calculations of the MECRs for cash-grant programs are usually less than $1 of pure waste, for every dollar of improvement for the poor

Ben-Shalom, Moffitt, and Scholz on the extent to which the various transfer payments reduce poverty

Ben-Shalom, Moffitt, and Scholz performed calculations of the extent to which the various transfer programs reduce poverty. In order to do this in a meaningful way, they had to make some changes to the definition of poverty, because according to the official definition, in-kind transfer programs have no effect on the poverty rate. Their calculations (for 2004) indicate that without any transfer payments, the poverty rate in the United States would have been 29%. After all transfers, the poverty rate would drop to 13.5%. Not surprisingly, they find that the transfer-payment programs lead to very large reductions in poverty for the elderly and disabled, but not for other groups.

The Glass-Steagall Act increased the regulation of the financial-services sector. The Social Security Act instituted a program of income support for retirees. The National Labor Relations Act made it easier for labor unions to organize. The Fair Labor Standards Act instituted a national minimum wage. All of these laws are believed to have pushed the distribution of income in the United States in the same direction, and all were passed within a period of six years. When did this occur?

Between 1933 and 1938

How has the official poverty rate changed over time?

Between 1959 and 1973, the official poverty rate was reduced by more than half, from 22.4% to 11.1%. (the lowest level ever recorded) The poverty rate then rose to 15.2% in 1983, in the wake of a deep recession. Since then, the official poverty rate has stayed with the range from 11.1% to 15.1%. In 2017, it stood at 12.3%. About 39.7 million Americans were officially counted as being in poverty in 2017.

Raj Chetty and a team of co-authors studied the intergenerational transmission of economic status for blacks and whites in the United States. They found that, conditional on parents' income,

Blacks have less upward mobility than whites Blacks have considerably more downward mobility than whites The black/white differences in intergenerational mobility are caused entirely by lower earnings and employment for black men

Has health care improved or worsened in the US?

By most measures, health care has improved in the United States, especially for poorer elderly persons. The improvements in health care have helped to increase life expectancies.

Which of the following is/are NOT a component of capital income A. Dividends B. Interest C. Social Security benefits D. Net rental income

C. Social Security benefits

Piketty and Saez studied the changes in the composition of the incomes of those at the top of the income distribution during 1913. During that time, which type of income has become relatively more important to the top 1% A. Social Security payments B. Dividends received from stocks C. Entrepreneurial income D. Net rent from ownership of buildings E. Earnings from work

E. earnings from work

Which of the following is the largest component of personal income in the United States? A. Government payments to poor families B. Interest payments C. Capital gains D. Royalties E. Employee compensation

E. employee compensation

Number of homeless in US

Estimates of the size of the homeless population in the United States range from about 200,000 to about 600,000. Thus, at any one time, the homeless population is somewhere in the range of one or two tenths of 1% of the U.S. population. However, there is mobility into and out of homelessness during the year. Perhaps a million or a few million Americans are homeless at some time during the year

How does the official poverty rate differ between men and women?

Ever since the poverty rate has been separately calculated for men and women, women have had a higher poverty rate than men.

How does country of birth affect the poverty rate?

Ever since the poverty rate has been separately calculated for people with different nativity, the poverty rate has been highest for foreign-born people who are not naturalized citizens, and lowest for foreign-born people who are naturalized citizens. The poverty rate for native-born Americans is in between. In 2017, the poverty rate for native-born Americans was 11.9%, the poverty rate for naturalized citizens was 10.1%, and the poverty rate for foreign-born people who are not naturalized citizens was 18.6%.

Do families with more children have a higher or lower poverty rate than families with fewer children?

Families with more children have significantly higher poverty rates than do families with fewer children.

How does the US allocate federal expenditures on transfer payment programs? What does this suggest about the government's values?

Federal expenditures on the social-insurance programs total about $1.5 trillion. Federal expenditures on Medicaid are nearly $500 billion, while expenditures on all of the other means-tested programs, mentioned above, are about $300 billion. These patterns suggest that transfer-payment policies in the United States are strongly tilted toward the elderly, disabled, and sick, and not very strongly toward the poor.

Manpower Development Training Act (MDTA)

Federal involvement with training began in the 1960s, with the Manpower Development Training Act (MDTA). Of the programs that were begun at this time, one of the best known was the Job Corps. Much of the MDTA was supplanted by the Comprehensive Employment and Training Act (CETA)

How does the poverty rate differ between female-headed households and two-parent households? How has this changed over time?

Female-headed families have much higher rates of poverty than do two-parent families. In 2017, all families had an official poverty rate of 10.3%, but female-headed households had a poverty rate of 27.9%. (This is actually a substantial improvement. The official poverty rate for female-headed families was around 50% in the early 1960s.)

Gender earnings differences in the United States are ___________ gender earnings differences in Europe. One reason for this is that overall earnings inequality in the United States is _______ overall earnings inequality in Europe.

Gender earnings differences in the United States are larger than gender earnings differences in Europe. One reason for this is that overall earnings inequality in the United States is larger than overall earnings inequality in Europe.

How is the official poverty statistic in the US calculated?

If a household's pre-tax money income is less than a threshold, all people in that household are counted as poor. If a household's pre-tax money income is equal to or greater than the threshold, all household members are counted as not poor.

We have studied the Great Convergence of the early-middle 20th century and the Great Divergence of the late 20th and early 21st centuries. Which of these, if any, was affected by import competition from low-wage countries, and when?

Import competition contributed to the Great Divergence after 1990

In "The Fading American Dream," Raj Chetty and co-authors find that absolute intergenerational mobility decreased in every region of the United States, and that it decreased throughout the entire earnings distribution. However, the decreases in absolute mobility were not distributed uniformly. The region with the greatest decreases in absolute mobility was _________ and the part of the income distribution with the greatest decrease in absolute mobility was __________

In "The Fading American Dream," Raj Chetty and co-authors find that absolute intergenerational mobility decreased in every region of the United States, and that it decreased throughout the entire earnings distribution. However, the decreases in absolute mobility were not distributed uniformly. The region with the greatest decreases in absolute mobility was the Midwest and the part of the income distribution with the greatest decrease in absolute mobility was the middle of the income distribution

How has the poverty rate for children and the elderly changed over time?

In 1966, the official poverty rate was 17.6% for children under the age of 18, and 28.5% for those aged 65 and over. By 2017, the official poverty rate for children was 17.5%, while the official poverty rate for the elderly had fallen to 9.2%. Thus the official poverty rate is now substantially lower for the elderly than for children, although the opposite used to be true, until the mid-1970s. (Due in part to the expansion of the Social Security program, the poverty rate for elderly Americans decreased dramatically in the 1960s and 1970s.)

In 2017, what was the poverty rate for non-Hispanic whites? For blacks? For Hispanics?

In 2017, the official poverty rate was 8.7% for non-Hispanic whites, and 21.2% for blacks. For Hispanics, the rate was 18.3%

In an article on your reading list, Bourguignon and Morrisson studied the distribution of income for the entire world. As of 1992 (the last year of their study), they calculate that the distribution of income for the entire world had a degree of inequality that was _______ the distribution of income for nearly all of the individual countries in the world

In an article on your reading list, Bourguignon and Morrisson studied the distribution of income for the entire world. As of 1992 (the last year of their study), they calculate that the distribution of income for the entire world had a degree of inequality that was more unequal than the distribution of income for nearly all of the individual countries in the world

In the 1970s, the ratio of median black household income to median white household income in the South was ______ the ratio of median black household income to median white household income in the Midwest. In recent years, the ratio in the South has been ______ the ratio in the Midwest

In the 1970s, the ratio of median black household income to median white household income in the South was smaller than the ratio of median black household income to median white household income in the Midwest. In recent years, the ratio in the South has been larger than the ratio in the Midwest

In the United States, several of the states with the highest per-capita incomes are in the ____________, and several of the states with the lowest per-capita incomes are in the ______________

In the United States, several of the states with the highest per-capita incomes are in the Northeast, and several of the states with the lowest per-capita incomes are in the South

What problem did Social Security face in the 1980s? How was this solved?

In the early 1980s, a short-run funding problem arose because of the poor performance of the economy. The short-run problem was solved by the program changes in 1983, which brought more workers into the system, accelerated tax rate increases, and subjected the benefits of high-income individuals to tax. (The latter change is not indexed for inflation, so that its revenue-raising capability is expected to grow over time.)

What happened when many states were granted waivers from federal welfare laws in the early 1990s?

In the early 1990s, many States were granted "waivers" from federal welfare laws, which allowed the States to experiment with a variety of work requirements and other initiatives. The trend toward reform culminated in the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996.

tax incidence of the corporate tax

In the short run, it is probably borne mostly by corporate shareholders. However, over time, there will be a reallocation of the capital stock, so that the net rates of return are equalized between corporate firms and non-corporate enterprises. As a result, the burden of the corporate tax will be borne by all owners of capital, and not just by those in the corporate sector. In the long run, the drop in net returns to capital may lead to a reduction in the amount of capital accumulation. As a result of this, part of the burden of the corporate tax may ultimately be borne by workers, since wages will be lower if the amount of capital per worker is lower. However, the consensus among economists is probably that most of the burden of the corporate tax is borne by capital owners. Thus the corporate tax is progressive.

Griggs v. Duke Power Co

In this 1971 case, the Supreme Court ruled that numerical imbalance could be taken as prima facie evidence of discrimination. Thus, the burden of proof was placed on employers. The Griggs decision was largely reversed by two decisions in 1989. These decisions, in turn, were overturned by the Civil Rights Act of 1991.

adverse selection in health care

Insurance companies try to spread risk across broad populations, by offering insurance based on population averages. However, individuals may have specific information about their own situations. In the case of health-insurance markets, those who know that they have poor health will recognize that insurance based on average risks is a good deal for them, while those with good health will see that such insurance may not be a good deal for them. If only the unhealthy people sign up for insurance, then the insurance company may be unable to avoid losses.

moral hazard in health care

Insurance makes it more likely that the insured event (or the appearance of the insured event) will occur, either because people take less care, or because they consume insured services of little value, or because of outright fraud

Are job search services effective?

Job-search services are relatively inexpensive, and they seem to help workers to find jobs more quickly.

How has the ACA affected the number of Americans with health care?

Largely as a result of the Affordable Care Act, the fraction of the U.S. population who do not have health insurance decreased from 15.5% in 2010 to 8.7% in 2017. As shown by Kaestner and Lubotsky, the increases in insurance under the Affordable Care Act were concentrated in the lower part of the income distribution.

how does being a defined-benefit system affect Social Security?

Like any defined-benefit system, it is not necessarily in long-run balance. Under current projections, the system faces a long-run deficit (i.e., the benefits promised to retirees are larger than the tax revenues that are expected to be collected).

What causes the perceived need for employment and training programs?

Most of the perceived need for employment and training programs has to be viewed in terms of the poor performance of parts of the school system. If all potential workers were educated adequately in school, then the need for training programs would be reduced greatly.

Ben-Shalom, Moffitt, and Scholz on the extent to which individual programs, by themselves, would reduce poverty

Most of the programs are too small to have much effect on the poverty rate by themselves. The exceptions are the three largest programs, Social Security, Medicare, and Medicaid. The calculations suggest that, by itself, Medicare would reduce the poverty rate from 29% to 19.9%. By itself, Social Security would bring the rate down to 21%. By itself, Medicaid would bring the rate down to 25.2%. Thus, Social Security and Medicare have the largest poverty-reducing effects, even though they are not means-tested. This is partly because these programs are so large, and partly because they are targeted at the elderly. In the absence of transfer payments, the poverty rate for elderly Americans is higher than the poverty rates for most other parts of the population.

Job Corps

One of the best known programs of the MDTA The Job Corps gives very intensive services to a population of workers who suffer from multiple disadvantages, and it appears to have been fairly successful

How can universal health care be achieved in the US and what are the benefits of this system?

One way to achieve universal health-insurance coverage in the U.S. would be to adopt a "single-payer" system, in which government finances the entire health-care system, as in the U.K. (We have seen that Medicare overcomes adverse selection for the elderly. If Medicare, or something like it, were extended to the entire population, it would eliminate adverse selection entirely.) An advantage of a unified system is that it would reduce administrative costs, relative to the patchwork system in the U.S.

How could the official poverty statistic be improved by changing the concept of income used?

One way to improve the poverty statistics would be to broaden the income concept used. If we include in-kind income (such as Food Stamps and Medicaid) and tax credits, the official rate would drop by a few percentage points. If we were to include the value of owned homes, it would fall more. If we were to correct for underreporting of income, the rate would fall even further. On the other hand, the official statistics do not count the institutionalized population or the homeless. Assuming that the homeless are almost all poor, a measure that includes them would increase the poverty rate. Also, the official poverty rate does not account for taxes or work-related expenses, such as the expense of child care. If these factors were included, the poverty rate would increase.

How have federal expenditures on transfer payment programs changed in recent decades?

Overall federal expenditures on transfer payments have grown very substantially in recent decades, although the growth has not been shared evenly across all programs. Medicare has been the fastest-growing social-insurance program, by far, and Medicaid has been the fastest-growing means-tested program, by far. Among non-Medicaid means-tested programs, the Earned Income Tax Credit has grown the fastest, and Temporary Assistance for Needy Families ("welfare") has decreased the most.

How does poverty differ by race?

Poverty is much lower among non-Hispanic whites than among blacks and Hispanics

Job Training Partnership Act (JTPA).

Reagan Administration's replacement for CETA This eliminated public-service jobs. Under JTPA, training was available for the first time for those who were dislocated but not disadvantaged

Are the sales and excise tax progressive or regressive?

Sales and excise taxes are probably somewhat regressive. This is partly because these taxes only apply to consumption expenditure. Therefore, they do not apply to saving, which is concentrated disproportionately in the upper-income groups. In most states, the general retail sales tax does not apply to food, or to most services. The food exemption tends to make the tax less regressive, while the exemption for services may make the tax more regressive.

How has the gap between white and black poverty rates changed since 1959?

Since 1959, when these numbers were first calculated, the gap between the poverty rates of blacks and whites has reduced substantially. In 1959, the black poverty rate was about three times as large as the white poverty rate. In recent years, the black rate has been about twice as large as the white rate

Since 1973, how has the poverty rate been related to recessions?

Since 1973, the poverty rate has increased during and slightly after every recession. This suggests that economic expansion and full employment have especially important anti-poverty effects.

Since the 1970s, for full-time, year-round workers in the United States, the ratio of earnings of the median black man to the earnings of the median non-hispanic white man has _______ in the 11 states that were once part of the Confederacy, and _____ in the rest of the country

Since the 1970s, for full-time, year-round workers in the United States, the ratio of earnings of the median black man to the earnings of the median non-hispanic white man has increased in the 11 states that were once part of the Confederacy, and decreased in the rest of the country

Since the late 1960s in the United States, the 95/50 ratio (ie. the ratio of the income of the household at the 95th percentile to the income of the household at the 50th percentile, which is the median) has ________ and the 50/10 ratio has __________

Since the late 1960s in the United States, the 95/50 ratio (ie. the ratio of the income of the household at the 95th percentile to the income of the household at the 50th percentile, which is the median) has increased substantially and the 50/10 ratio has not changed very much

effectiveness of job training programs

Since the size of the investment in job-training programs is fairly small, it is not surprising that the gains are modest. The programs that are in effect now are not large enough to reduce poverty by a substantial amount. If we were to try to use training programs to make a major dent in poverty, it would probably require tens, or even hundreds, of billion dollars per year.

What long-term problem does Social Security face? What caused this problem?

Social Security faces a long-run funding problem. This is caused in part by the large size of the Baby Boom generation, which is expected to strain the system from about 2010 to about 2050. Under current projections, the system will run out of funds in a few decades. Even more fundamentally, if the projected increases in life expectancies actually occur, they will strain the system indefinitely.

Is the tax system as a whole progressive or regressive?

Studies in the tradition of Pechman and Okner use different sets of incidence assumptions, and try to determine the distributional effect of the entire tax system. The general conclusion is that the system is more or less proportional over most of the income range. Some of the calculations find the overall system to be somewhat progressive, but not strongly progressive. The income tax is sufficiently progressive that it offsets the regressivity of the sales and excise taxes.

Who benefits most from job training programs?

Studies indicate that disadvantaged women seem to benefit from training programs more than do disadvantaged men and youths. Thus, there may be a role for further experimentation in the future, in order to find more effective ways to reach men and youths

Rank South Africa, Sweden, and the United States according to their Gini ratios. The first country in your ranking should be the one with the lowest Gini ratio. Next will come the country with an intermediate Gini ratio, and the last country in your ranking should be the one with the highest Gini ratio

Sweden, United States, South Africa

negative income tax

The "negative income tax" is an idea that was developed in the 1960s, in an effort to improve upon the old-style welfare programs. The negative income tax had a cash grant, but an implicit marginal tax rate of less than 100%. The cash grant would still provide a work disincentive, but the implicit marginal tax rate of less than 100% is associated with less disincentive than a marginal tax rate of 100%.

What effort has been made to solve Social Security's long-term funding problem?

The 1983 changes in the law raised to 67 the age at which workers can retire with full benefits (although the increase in the retirement age is being phased in over several decades). Whether this will be sufficient to solve the long-run problem will depend on what happens to fertility, mortality, immigration, and the performance of the economy. Social Security is extremely popular politically, and it is very difficult to imagine that Congress will not eventually do something else to mend the system. Moreover, the system could be brought into long-run balance by changes that are not exceptionally harsh.

How much might adjustment based on CPI bias the official poverty statistic?

The Boskin Commission has suggested that the bias may be 1.1 percentage points per year, which could lead to substantial errors over a long time. Even if the bias is substantially less than the 1.1 percentage points per year suggested by the Boskin Commission, it could accumulate to a large error over time. Thus, if we believe that the poverty thresholds were correct in past years, today's poverty thresholds would overstate the "true" poverty rate. Meyer and Sullivan estimate that, if we were to correct for some of the biases in the CPI, the poverty rate would have been two percentage points lower in 2010 than in 1980, whereas the official poverty rate was two percentage points higher.

Do Social Security benefits tilt in favor of those with higher or lower lifetime earnings histories?

The Social Security benefit formula has a progressive tilt toward those with lower lifetime earnings histories. If everyone had the same life expectancy, this would mean that Social Security redistributes toward the poor. However, poorer people tend to have shorter life expectancies. The life-expectancy difference offsets a substantial portion of the progressive benefit formula, so that the average rates of return for poor and rich are much more similar than they would be if poor people lived as long, on average, as those with higher incomes. Still, on net, the rates of return for those with lower lifetime earnings histories are probably higher than the rates of return for those with higher lifetime earnings histories.

Does Social Security make actuarial adjustments for differences in life expectancy? What effect does this have?

The Social Security system in the United States does not make actuarial adjustments for differences in life expectancy. Consequently, groups with longer life expectancies (such as women, whites, and non-smokers) tend to get higher rates of return from Social Security, on average, than those with shorter life expectancies (such as men, blacks, and smokers).

What regions of the US have the highest incidence of poverty? Why?

The South and Southwest have the highest incidence of poverty in the United States. This is partly related to the differences by race and ethnicity, mentioned above. Many states in the South have large African-American populations, and some have large Hispanic populations. One of the states with the highest poverty rates is New Mexico, which has a large Hispanic populations.

How does the income inequality in the United States compare with income inequality in the other most affluent countries in the world?

The US is more unequal than all of the other rich countries

What quality of the US health care system distinguishes it from other rich countries?

The United States is unique among the high-income countries in the world, in that the U.S. does not have universal health-insurance coverage. Instead, the U.S. has a fragmented system of private insurance, Medicare, Medicaid, and veterans' care.

What percent of Americans are considered to be globally poor? What percent of Germans? What income does this represent?

The World Bank estimates that 1.7% of Americans (more than 5 million people) are globally poor. By contrast, they estimate that no one in Germany is globally poor. The World Bank's line for being considered "globally poor" in an advanced country is about $4 per person per day

How does Affirmative Action apply to private employers?

The affirmative-action effort was eventually applied to private employers as well. For example, one of the strictest affirmative action plans was the "Philadelphia Plan", which was applied to the building construction trades in Philadelphia after 1969. The Civil Rights Act of 1964 paved the way for private lawsuits.

What is the basic motivation for insurance?

The basic motivation for insurance is consumption smoothing: Risk-averse consumers are better off with outcomes that are relatively constant across different states of the world.

Earned Income Tax Credit (EITC)

The closest thing to a large-scale wage-subsidy plan in the United States is the Earned Income Tax Credit program (EITC), which operates as a refundable credit within the individual income tax system. The EITC is not a pure wage subsidy, however. It gives an increase in the net wage rate for workers with very low levels of earnings, but not for workers with higher levels of earnings. In fact, for many lower-middle income families, the EITC has the same effects as a cash grant and a tax. It has been estimated that the EITC stimulates additional work by enough people that its net effect on labor supply is positive.

Is the degree of wealth mobility or income mobility greater?

The degree of wealth mobility is less than the degree of income mobility. Menchik and Jianakoplos find that, over a 15-year period, about half of the households changed quintiles. However, most of these movements were to adjacent quintiles. Movements from the poorest quintile to the richest are extremely rare.

How has the poverty gap between men and women differed over time?

The difference between the poverty rates for women and men has ranged from 2.3 percentage points to 3.7 percentage points. In 2017, the poverty rate for women was 13.6%, and the rate for men was 11%, for a difference of 2.6 percentage points

The distribution of income is positively skewed. This means that the mean (or average) income is ________ the median income

The distribution of income is positively skewed. This means that the mean (or average) income is greater than the median income

Which is more unequal--the distribution of wealth or the distribution of income? How has this changed in recent years?

The distribution of wealth is much more unequal than is the distribution of income. Moreover, the distribution of wealth has become more unequal in recent years. According to a calculation by Wolff, the Gini coefficient for wealth in the United States is around 0.84.

Is the federal income tax progressive or regressive?

The federal individual income tax is progressive, for two reasons. The personal exemptions impart progressivity at low incomes, and the graduated marginal tax rates impart progressivity at higher incomes.

The intergenerational earnings elasticity in the United States is _______ the intergenerational earnings elasticity in Canada

The intergenerational earnings elasticity in the United States is about twice as large as the intergenerational earnings elasticity in Canada

What is the main criticism of the official poverty statistic in the US?

The official poverty measure has been widely criticized for its treatment of in-kind income (non-cash income)

What income is the official poverty rate based on?

The official poverty statistic in the US is based on before-tax money income. This includes earnings, self-employment income, dividends, interest, net rental income, royalties, Social Security benefits, and unemployment compensation benefits. It does not include in-kind income, such as the value of Medicare, Medicaid, housing subsidies, and the Food Stamps. It also excludes the Earned Income Tax Credit, which comes through the tax system.

Based on what does the official poverty statistic vary?

The official poverty threshold varies according to the number of adults in the household, the number of children in the household, and whether the household head is elderly.

Is the payroll tax progressive or regressive?

The payroll tax is somewhat progressive at the bottom of the income range, because it does not apply to transfer payments. It is then approximately proportional over much of the middle of the income range, because it is a flat tax on labor earnings, and most households get most of their income from labor earnings. The payroll tax is regressive at high incomes, because (1) there is a ceiling on the level of earnings to which the payroll tax is applied, and (2) because the tax does not apply to capital income.

How are the official poverty thresholds updated?

The poverty thresholds are updated every year to account for the effects of inflation, on the basis of the change in the Consumer Price Index.

We can calculate the ratio of the earnings of the median black male full-time year-round worker in the United States to the earnings of the median white full-time year-round worker. We can also calculate the ratio of earnings of the median black female full-time year-round worker to the earnings of the median white female full-time year-round worker. Which of these earnings ratios is larger?

The ratio is larger for women

How does the rationale for Affirmative Action compare between labor markets and higher education?

The rationale for affirmative-action efforts is probably stronger in labor markets, where there is substantial evidence of discrimination. In higher education, there is much less evidence of discrimination. Nevertheless, affirmative-action programs have been applied in higher education, and this has occurred at the same time as increases in enrollments. However, minority enrollments probably would have increased a fair amount anyway, because of the overall improvement in the economic circumstances of minorities.

How does Social Security differ for one- or two- earner married couples?

The system also redistributes in favor of one-earner married couples, because of benefits that go to non-working spouses

In 2017, what was the poverty threshold for a four-person household?

The threshold for a four-person household was about $25,000 or $26,000, depending on the numbers of adults and children.

What are the effects of the US's lack of a universal health care system?

This lack of a unified system leads to much higher administrative costs in the U.S. Another effect of the lack of universal coverage is that the uninsured often receive treatment at emergency rooms, which is very inefficient.

What are the effects of adverse selection in health care?

This may lead to the collapse of private insurance. In response to this problem, private health-insurance companies in the United States used to deny coverage to unhealthy people. In markets with adverse selection, there is a potential role for government.

Is the problem of homelessness related to housing policy?

To a large degree, the problem of homelessness is not a problem of housing policy. Some estimates are that as much as 70% of the homeless population suffer from substance abuse. A large portion of the homeless population suffers from mental illness, as well. (This is partly due to "deinstitutionalization"-- the number of patients in inpatient mental hospitals decreased tremendously during the 1960s and 1970s.) However, the problem is also affected by housing policy. "Urban renewal" projects have destroyed one million low-income rental-housing units. Federal spending for housing assistance decreased significantly in the 1980s and 1990s. Rent-control ordinances tend to worsen the shortages of low-cost housing, as do restrictive zoning ordinances and building codes.

How do traditional welfare programs provide work disincentives?

Traditional welfare programs create two kinds of work disincentive. First, they provide cash. Since leisure is a normal good, cash grants will tend to reduce work. Second, they tax the recipients when they earn money in the labor market. (Sometimes, the implicit tax rates can be extremely high. For example, the official marginal tax rate under the AFDC program, now known as TANF, was 100% for many years.) The combined effect of these disincentives is that many welfare recipients would rationally choose not to work.

How does being a pay-as-you-go system affect Social Security?

Under a pay-as-you-go system, the "startup generation" receives a large windfall gain. (In the United States, the startup generation includes those born between about 1870 and 1930.) However, this gain is not necessarily offset by a loss to any subsequent generation, as long as the program is maintained in perpetuity. However, if the program is terminated, one generation will get stuck paying a substantial amount for the retirements of the next-older generation, and they will not receive benefits paid for by the next-younger generation.

What is the budget constraint "notch?"

Under some public-housing programs and the Disability-Insurance program, one is either eligible for full benefits, or not eligible for any benefits. This means that the budget constraint has a "notch", under which earning an extra dollar of income can lead to the loss of thousands of dollars of transfer payments. This is an extraordinarily strong work disincentive, in the neighborhood of the notch

We discussed a paper by David Lee, and another paper by David Autor, Alan Manning, and Christopher Smith, each of which studied the effect of minimum wage on inequality in the low end of the US wage distribution. They found that the effects of the minimum wage for women are ________ the effects for men

We discussed a paper by David Lee, and another paper by David Autor, Alan Manning, and Christopher Smith, each of which studied the effect of minimum wage on inequality in the low end of the US wage distribution. They found that the effects of the minimum wage for women are larger than the effects for men

We discussed a paper by the late Alan Krueger. He calculates that the increase in opioid prescriptions between 1999 and 2015 can account for _________ of the decrease in labor force participation of American men and _________ of the decrease in labor force participation of American women

We discussed a paper by the late Alan Krueger. He calculates that the increase in opioid prescriptions between 1999 and 2015 can account for 43% of the decrease in labor force participation of American men and 25% of the decrease in labor force participation of American women

How have health care expenditures changed over time, and what percent of GDP do they now represent?

We have seen that Medicare and Medicaid are two of the three biggest transfer-payment programs, and they are the fastest-growing. Expenditures for health care have grown rapidly, until health care now accounts for more than 17% of GDP in the United States

We studied a paper by Chetty and several co-authors, which calculated the percentage of Americans who earned more than their parents. For those born in 1940, _______________ earned more than their parents. For those born in 1980, ______________ earned more than their parents.

We studied a paper by Chetty and several co-authors, which calculated the percentage of Americans who earned more than their parents. For those born in 1940, 92% earned more than their parents. For those born in 1980, 50% earned more than their parents.

We studied a paper by Sala-i-Martin, who showed that in 1970, the majority of very poor people in the world lived in ________, and in 2000, the majority of very poor people in the world lived in ________

We studied a paper by Sala-i-Martin, who showed that in 1970, the majority of very poor people in the world lived in Asia, and in 2000, the majority of very poor people in the world lived in Africa

We studied an article by Corak, which looked at the financial return to a college education in several rich countries. Researchers conclude that the rate of return to a college education in the United States is _________ the rates of return to a college education in the other countries

We studied an article by Corak, which looked at the financial return to a college education in several rich countries. Researchers conclude that the rate of return to a college education in the United States is larger than the rates of return to a college education in the other countries

We studied the differences among countries in per-capita gross domestic product (GDP). The per-capita GDP of the most affluent countries is ________ the per-capita GDP of the poorest countries

We studied the differences among countries in per-capita gross domestic product (GDP). The per-capita GDP of the most affluent countries is more than 100 times as large as the per-capita GDP of the poorest countries

We studied the typical paths of earnings over the lifetime. We saw that earnings tend to be higher for workers who are in their late forties and early fifties, than for workers who are in their twenties. Over the life cycle, the increase of earnings for men with a Bachelor's degree is _________ the increase of earnings for men with only a high school diploma

We studied the typical paths of earnings over the lifetime. We saw that earnings tend to be higher for workers who are in their late forties and early fifties, than for workers who are in their twenties. Over the life cycle, the increase of earnings for men with a Bachelor's degree is larger than the increase of earnings for men with only a high school diploma

Why does the poverty threshold vary based on the size of the household?

When we compare these poverty thresholds for households of different sizes, it can be seen that they exhibit economies of scale, which seems sensible

How could the official poverty statistic be improved by using a consumption-based definition of poverty?

With a consumption-based definition, we would recognize that people whose incomes are temporarily low may still be able to support their consumption, by drawing down their assets, or by borrowing. A consumption-based definition would also account for the fact that many people own consumer durables. The most important of these is the owner-occupied home. If a low-income household owns its own home, and has paid off the mortgage, it is able to consume housing services at low cost. Meyer and Sullivan estimate that, if we were to use a consumption-based measure, the poverty rate would have dropped by eight percentage points from 1980 to 2010

Social Security

an unfunded, pay-as-you-go, defined-benefit system

We studied a paper by Goldin and Margo, on the causes of the "Great Compression" or "Great Convergence" that took place in the early and middle part of the 20th century in the United States. They discuss the role of the National War Labor Board (NWLB), which existed between 1942 and 1945. The NWLB tended to

approve wage increases for low-wage workers and disapprove wage increases for high-wage workers

Ballard and Goddeeris

calculated the efficiency costs of proposals for universal health-care coverage in the United States. Efficiency costs in the vicinity of 30 cents of waste for every dollar of gain are common. For all such programs, it is estimated that the poor are made better off, and the highest-income people are made worse off. Thus, universal health-care coverage can be viewed as having a substantial element of redistribution. If universal coverage is achieved through a nationalized, tax-financed system, the losses are worse for the highest-income families. If universal coverage is achieved through a "mandate-with-tax-credit" program (i.e., a substantially expanded version of the Affordable Care Act), the effects will be worse for the lower-middle class.

Holzer and Neumark

conclude that affirmative action offers significant redistribution toward women and minorities, with relatively small efficiency consequences

Over the past 60 years, the proportion of the US labor force that is a member of a union has

decreased from about 33% to about 11%

The marginal efficiency cost of redistribution (MECR)

defined as the proportion by which the losses to the losers from a redistributive program are greater than the gains to the winners

Citro and Michael

developed a Supplemental Poverty Measure, which was implemented (after some changes) in 2010 and 2011. The Census Bureau now publishes the Supplemental Measure, along with the official measure. The Supplemental Measure, like the official measure, is income-based, rather than consumption-based. Meyer and Sullivan suggest that the Supplemental Measure does not do a very good job of identifying the disadvantaged. This is partly due to quirky patterns of underreporting, and partly due to the fact that the Supplemental Measure excludes out-of-pocket medical expenses.

In 2017, what was the poverty threshold for an elderly one-person household? For a non-elderly one person household?

elderly-- $12,000 non-elderly-- $13,000

MECRs for wage-subsidy programs?

for a wage-subsidy program, the incentive effects are such that the MECRs are close to zero, and can be negative.

What is the relationship between the adequacy of benefits, disincentives, and costs of cash-grant welfare programs?

for any cash-grant welfare program, there is a stringent tradeoff between the adequacy of benefits (represented by the grant that is given to those who do not work at all), the disincentives (represented by the implicit marginal tax rate), and the cost of the program (represented by the "breakeven" level of earnings). This tradeoff can be captured by the formula, EB = G/t, where EB is the breakeven level of earnings, G is the guarantee for those who do not work at all, and t is the implicit marginal tax rate. If the program is made more generous (by raising G), either it must become more expensive (by raising EB), and/or the work disincentives must be increased (by raising t).

Hoynes, Page, and Stevens

found that an increase in the unemployment rate is associated with an increase in poverty, and that an increase in the median wage is associated with a decrease in poverty. They also found that, all else equal, an increase in low-end wage inequality is associated with an increase in poverty. They found that, by themselves, the changes in family structure would have increased poverty substantially. However, this has been largely offset by the increase in women's earnings and labor-force participation.

means tested transfer programs

government transfer programs explicitly aimed at low-income households. The biggest of these, by far, is the Medicaid program, which pays for health care for certain low-income families. Other means-tested programs include the Earned Income Tax Credit (an earnings subsidy targeted at low-income households), the Supplemental Nutritional Assistance Program (formerly known as Food Stamps), housing assistance, and Temporary Assistance for Needy Families (formerly known as Aid to Families with Dependent Children, and widely known as "welfare").

social insurance transfer programs

government transfer programs, which may benefit the poor, but they are not explicitly targeted at low-income households. These include Old Age Survivors Insurance (the old-age retirement portion of Social Security), Medicare (which pays for health care for the elderly and disabled), the Disability Insurance program, and Unemployment Insurance.

In most years from 1944 until 1963, the highest marginal tax rate in the federal individual income tax in the United States was

greater than 90%

Since the 1970s, the gap between women's earnings and men's earnings in the United States has shrunk. For what group has this shrinkage of the gap been the smallest?

high-wage workers

Since the late 1960s, the Gini ratio for annual household income in the United States has

increased from about 0.40 to about 0.48

Bourguignon and Morrisson find that world inequality increased rapidly from 1820 to 1950. From 1950 to 1980, world inequality ___________

increased less rapidly than it had increased from 1820 to 1950

What major problems are the health care markets prone to?

insurance markets are prone to two major problems: moral hazard and adverse selection

Why is it believed that a considerable amount of health care expenditures are of little medical value?

it is believed that a considerable amount of health-care expenditures is of little medical value. One reason for this is that health insurance means that those who use the health-care system are often unaware of the true costs of care. In addition, malpractice lawsuits are believed to cause many doctors to practice "defensive medicine", which means that they order tests and procedures that are of little value, in order to provide cover for themselves in the event of a lawsuit.

As a share of total income, capital income is

largest for those with the highest incomes

Two types of government transfer programs?

means tested social insurance

Medicare and adverse selection

one advantage of the Medicare program is that it applies to the entire elderly population in the U.S. As a result, the problem of adverse selection is eliminated for elderly Americans.

Francine Blau and Christopher Mackie survey many studies of the effects of immigration of low-skill workers on the wages of workers who were already in the United States. Some of the studies find very small effects, but others find significant negative effects, ie. the workers who were already in the United States see a decrease in their wage rates. In the studies that find negative effects, which group(s) of workers appear to suffer the most as a result of immigration?

prior immigrants with less than a high school education and native-born workers with less than a high school education

Comprehensive Employment and Training Act (CETA)

supplanted much of the MDTA passed much of the responsibility for training programs to the states. There is some evidence that some of the money spent under CETA was merely used for "fiscal substitution", which means that the employment impact may have been small. During the Carter Administration, a substantial amount of funding was devoted to "public-service jobs". The Reagan Administration replaced CETA with the Job Training Partnership Act (JTPA).

How has the ACA affected health care in America?

the Affordable Care Act, passed in 2010 in the United States, expands and adjusts the existing system in the U.S. The Affordable Care Act leaves Medicare in place, and allows states to expand Medicaid. (More than half the states, including Michigan, have expanded Medicaid.) The Affordable Care Act also tries to expand the non-group health-insurance market. The first part of that is to prohibit insurance companies from denying coverage to those with pre-existing medical conditions. However, if that were not accompanied by any other changes, it could lead to a devastating adverse-selection spiral. Thus the Affordable Care Act then tries to get more healthy people to buy insurance, through a set of incentives and penalties for firms to provide insurance, and for individuals to get coverage.

We discussed a study by Claudia Goldin and Cecelia Rouse, who found that a change in the way in which orchestra auditions are conducted was followed by an increase in the number of women hired in major orchestras in the United States. Economists interpret this as evidence that

the change led to a reduction in discrimination against female musicians

In the United States, it is possible to calculate the ratio of the earnings of the median woman to the earnings of the median man. It is also possible to calculate the ratio of the mean level of earnings for women to the mean level of earnings for men. Each of these ratios is less than 1. If we compare them, we find that

the median ratio is larger than the mean ratio

What factors have contributed to rising health care expenditures?

the population is aging. it appears that the income elasticity of demand for health-care expenditures is high, so that rising incomes have contributed to rising health-care expenditures. in recent decades, technological advances in health care have tended to involve complex and expensive diagnostic and therapeutic procedures, and this also puts upward pressure on spending. much health care in the U.S. is delivered through an inefficient "fee-for-service" system, which provides incentives for doctors to perform more procedures than they would otherwise perform. Part of the increase in spending is associated with the rise of obesity, which is associated with increased risk of circulatory diseases and diabetes. Another factor contributing to the increase in health-care spending is patent monopoly in the pharmaceutical industry.

How does work affect the poverty rate?

the poverty rate is very low for households with at least one full-time, year-round worker, and it is significantly higher for those that do not have a full-time year-round worker.

How does the reliance on CPI as a means for updating the official poverty statistic affect the accuracy of the poverty rate?

the poverty thresholds are updated from year to year on the basis of changes in the Consumer Price Index (CPI). There is reason to believe that the CPI overstates the true rate of inflation. The benchmark surveys for the CPI are only undertaken about once every 10 years. If new products are introduced between surveys, they aren't included at all until the next benchmark survey. Even for products that are already introduced, there are great difficulties in calculating the effects of quality improvements. Also, the CPI doesn't allow for the possibility that consumers could substitute away from goods that are becoming relatively more expensive. Finally, the CPI surveys a fixed set of retail establishments, so that the official statistics may have missed some of the switch toward high-volume discount stores.

Are changes in the poverty threshold regular or predictable?

the precise differences between the poverty thresholds for different family sizes are fairly irregular when the number of persons in the household increases, the additional income that is necessary to escape the official definition of poverty increases sometimes, and decreases sometimes.

Old-Age Survivors Insurance

the retirement portion of the Social Security system the largest transfer-payment program in the world has a significant effect in reducing poverty, even though it is not a means tested program

tax incidence of the payroll tax

the statutory incidence of the payroll tax is 50% on the employer and 50% on the employee. However, the true burden of the payroll tax will be borne primarily by the side of the labor market that is more inelastic. The supply of labor is probably more inelastic than the demand for labor, so that the workers will probably bear most of the burden, regardless of the statutory division between employer and employee.

What reasons exist for concern about the US health care system?

there are reasons for concern about the health-care delivery system in the U.S. even though the percentage of GDP devoted to health-care spending is much higher in the U.S. than in any other country, some measures of health attainment are no better for the U.S. population (and especially the minority population) than in many other countries. in spite of the large overall level of expenditure on health care, some 8.7% of the American population are uninsured.

What is the problem with studies in the style of Pechman and Okner?

they are based on annual data. Lifetime income is probably distributed much more equally than annual income. Nevertheless, lifetime tax incidence calculations (such as those of Fullerton and Rogers) usually give results that are fairly similar to those coming from annual incidence calculations, especially if we look at the overall tax system. The lifetime calculations tend to find that income taxes are progressive, but not as progressive as they appear to be when we take the annual perspective. The lifetime calculations also tend to find that sales taxes are regressive, but not as regressive as they appear in annual calculations.