Income Position Research Articles

The endangered middle class? A comparative analysis of the role played by income redistribution

Contributing to the debate on the decline of the middle class, this article provides a comparative and longitudinal analysis of changes to the relative position of middle income groups in 19 (post)industrial countries between 1985 and 2005. How much did the income position of the middle worsen compared with more vulnerable groups? To what extent did public policies mitigate the market position of different income groups? The analysis is based on microdata of the Luxembourg Income Study. It divides the broad category of ‘middle class’ into three groups. Results suggest little change in the income position of the middle classes with respect to both market and disposable incomes. In most countries market incomes in the top quintile increased remarkably while the bottom quintile group lost out. The scale of government income redistribution has improved the position of the lowest income group, while burdening the highest income group. But it failed to fully compensate for the growing gap between the top and bottom income groups. The distance between the middle and the top incomes grew significantly, which might be one reason for the current public debate about an endangered middle class.

Cost-Benefit Analysis: Why Relative Economic Position Does Not Matter

The current debate over cost-benefit concerns in agencies' evaluations of government regulations is not so much whether to consider costs and benefits at all but rather what belongs in the estimated costs and benefits themselves. Overlaid is the long-standing concern that the distribution of costs and benefits needs some consideration in policy evaluations. In a recent article in the University of Chicago Law Review, Robert Frank and Cass Sunstein proposed a relatively simple method for adding distributional concerns to policy evaluation that enlarges the typically constructed estimates of the individual's willingness to pay for safer jobs or safer products. One might pay more for safety if it were the result of a government regulation that mandated greater safety across-the-board. The reason, Frank and Sunstein argue, for enlarging current estimates is that someone who takes a safer job or buys a safer product gives up wages or pays a higher price, which then moves him or her down in the ladder of income left over to buy other things. Alternatively, a worker who is given a safer job via a government regulation has no relative income consequences because all affected workers have lower pay. We show that when considering the core of the Frank and Sunstein proposal carefully one concludes that current regulatory evaluations should be left alone because there is no reason to believe that relative positional effects are important either to personal decisions in general or to currently constructed cost-benefit calculations of government regulations in particular. One of the practical problems with trying to consider relative position of income and consumption when estimating willingness to pay is that there is no unique way to ascertain from a statistical model the person's actual social reference group. A researcher must specify ex ante a reference group and then net out the behavioral effects of a possibly incorrectly attributed reference group's behavior on the individual. There is no well-established result from survey data for a typical person's economic reference group. Moreover, the econometric literature generally finds that reference group or social interaction effects are small and easily ignored, perhaps because the relative positional effects of workplace or product safety offset possible reference group effects on residual income (income net of the implicit cost of the extra product or job safety). It is also the case that Frank and Sunstein's recommended increase in the value of willingness to pay for safety used in current regulatory evaluations is already considered. Regulatory evaluations often include a pessimistic and an optimistic value of likely benefits, and Frank and Sunstein's suggested revised value of willingness to pay is still below the optimistic case that carefully formulated cost-benefit studies use. It is easy to show that almost doubling the estimated value of a statistical life would have an inconsequential effect on the economic desirability of a broad set of regulatory policies. Finally, we argue that the most important refinements one could make in the area of regulatory evaluation would be for agencies involved to adhere more to the framework of what is generally considered a carefully done cost-benefit study, and for agencies to make greater actual use of appropriately done cost-benefit studies when recommending regulations.

Income redistribution through taxes and social benefits: The case of Slovenia and Croatia

The article analyses the redistributive effect attained by personal income tax, social security contributions and social benefits in Slovenia and Croatia. The redistributive effect is decomposed first to reveal progressivity and horizontal inequity effects, and further to show contributions of different tax and benefit instruments. Even though both countries started from the same socioeconomic background two decades ago, the current results reveal divergence that is a consequence of diverse development during this period. The results indicate that Croatia experienced significantly higher pre-fiscal income inequality and lower redistributive effect than Slovenia. Horizontal inequity effects, though, were higher in Slovenia than in Croatia. In both countries, the meanstested social benefits exerted an over-proportionate influence on the vertical effect, suggesting a strong impact of the welfare state on income position of their residents, but also induced a large amount of horizontal inequity. In Slovenia, the non-means-tested benefits slightly increased income inequality.

Fair Value Accounting vs. Historical Cost Accounting

This paper reviews fair value accounting method relative to historical cost accounting. Although both methods are widely used by entities in computing their income and financial positions, there is controversy over superiority. Historical cost accounting reports assets and liabilities at the initial price they were exchanged for at the time of the transaction. Conversely, fair value accounting quotes the prevailing price in the market. Nevertheless, while both methods of accounting affect financial statements, the impact of fair value accounting on the balance sheet and income statement is extreme due to the potential volatility of the method. Fair value accounting is deemed superior when compared to historical cost accounting because it reflects the current situation in the market whereas the later is based on the past. In addition, in relative terms, fair value accounting provides users with more current financial information and visibility.

The Fund's Income Position for FY 2013 - Midyear Update

This paper presents updated projections on the Fund’s FY 2013 income position. The projected net income is now SDR 2.1 billion, slightly lower than the earlier projection of SDR 2.3 billion at the beginning of the year. The changes reflect lower projected disbursements under approved arrangements owing to delays in scheduled drawings and arrangements expected to expire with substantial undrawn balances, the expectation that funding of the gold endowment will not begin until FY 2014, and lower implicit returns on the Fund’s interest-free resources due to the prevailing interest rate environment.

Do Relative Income and Income Inequality Affect Consumption? Evidence from the Villages of Rural China

This article examines how a household's consumption rate is affected by its relative income and income inequality within a community. Based on the theory of social status seeking in consumption, we test hypotheses related to these factors using a unique panel data set of rural households in China observed within a few hundred villages between 2003 and 2006. We find that the household's consumption rate is negatively related to the relative income position after controlling for the absolute income, and positively related to the income inequality of the village. We confirm these with different measurements of relative position.

Review of the Fund's Income Position for FY 2012 and FY 2013-14

This paper reviews the Fund’s income position for FY 2012 and FY 2013?14.1 The paper updates projections provided at the FY 2012 midyear review and proposes decisions for the current and next two financial years. These decisions include setting the margin for the rate of charge under the new Rule I-6(4) that the Executive Board adopted in December 2011.2 The new rule is based on principles endorsed by the Executive Board in April 2008 and that have guided decisions on setting the margin since FY 2009. Section II reviews the FY 2012 income position and main changes from the midyear projections; Section III makes proposals on the disposition of net income, and placement to reserves; Section IV discusses the margin on the rate of charge for FY 2013?14, the income outlook for that period, and projected burden sharing adjustments; and Section V reviews special charges.

Public Payments to Physicians in Ontario Adjusted for Overhead Costs

We used data collected in the 2010 National Physician Survey and public payment data published in the Institute for Clinical and Evaluative Sciences report Payments to Ontario Physicians from Ministry of Health and Long-Term Care Sources 1992/93 to 2009/10 to estimate 2009/2010 net physician income from public payments for Ontario physicians by specialty. Incorporating overhead substantially affects estimates of physician income and changes relative position. For example, ophthalmologists were ranked second when only public payments were considered but eighth when overhead was included. Conversely, hospital-based specialties such as anaesthesia, radiation oncology and emergency medicine rank significantly higher after overhead is included.

Socioeconomic status and beliefs about depression, schizophrenia and eating disorders

The association between socioeconomic status (SES) and knowledge/belief about depression, schizophrenia and eating disorders will be analysed. Data stem from a telephone survey in two large German cities (Hamburg and Munich, n = 2,014, response rate 51 %). Written vignettes with typical signs and symptoms suggestive of a depression, schizophrenia and eating disorders were presented to the respondents. Respondents were then asked about knowledge/belief about causes, symptoms, prevalence and treatment using a standardised questionnaire. Education, occupational position and income were used as SES indicators. Results of mixed hierarchal logistic regression analyses show that individuals with a low SES know less about symptoms and prevalences of depression, schizophrenia and eating disorders. Moreover, people with a high SES are more likely to consider medication as effective in case of depression and schizophrenia, but are less likely to believe that activities such as sports or relaxation are an effective measure to treat the three mental disorders under study. Respondents with a high SES are less likely to believe that a weak will is a possible cause of depression, schizophrenia and eating disorders. We found large similarities in the associations between SES and beliefs across the three mental disorders. Finally, associations of beliefs about mental disorders with education are stronger and more consistent than with income and occupational position. Results indicate an inequality in mental health literacy and underline that information campaigns on causes, symptoms, prevalence and treatment of mental disorders should consider information needs of people with a low SES.

DO POSITIONAL CONCERNS DESTROY SOCIAL CAPITAL: EVIDENCE FROM 26 COUNTRIES

Research on the effects of positional concerns on individuals' attitudes and behavior is sorely lacking. To address this deficiency, we use the International Social Survey Programme 1998 data on 25,000 individuals from 26 countries to investigate the impact of relative income position on three facets of social capital: horizontal and vertical trust as well as norm compliance. Testing relative deprivation theory, we identify a deleterious positional income effect for persons below the reference income, particularly for their social trust and confidence in secular institutions. Also often a social capital‐lowering effect of relative income advantage occurs, while a rise in absolute income almost always contributes positively. These results indicate that a rise in income inequality in a society too large is rather detrimental to the formation of social capital. (JELZ130, I300, D310)

The Fund's Income Position for FY 2012 - Actual Outcome

This paper presents the Fund’s net income for FY 2012. The actual outcome reported in this paper follows the closing of the Fund’s accounts for the financial year and completion of the FY 2012 external audit conducted by Deloitte & Touche, the Fund’s external auditor.

Drohende Altersarmut – neue Aufgaben für die Rentenversicherung?

Abstract Oliver Arentz and Steffen Roth state that poverty among the elderly is currently an exception in Germany. Nevertheless, it is foreseeable that future pensioners will have less income and assets at their disposal. Reasons are the effects of the demographic change to the pay-as-you-go pension scheme, gaps in employment biographies and low pay employment. With that in mind, they discuss the reform package advocated by the Federal Ministry of Labour and Social Affairs. Furthermore they derive guidelines for a sustainable reform of the pension schemes. Bert Rürup also argues that poverty in old age is up to now not a relevant social problem in Germany. Nevertheless, there are clear indications that poverty among the elderly will increase in the future due to a bundle of reasons. Because of this there is no silver bullet to solve this problem. In the conception of an adequate strategy to reduce and to prevent a rise of poverty in old age, however, the equivalence principle as the basic principal the German statutory pension scheme has to be questioned critically. Jan Goebel gives an overview of the current development of old-age poverty in Germany and classifies widely discussed concepts for the reform of statutory pension insurance. Although current indicators generally point to an increase in old-age poverty, the empirical data show no growth at present in poverty risk for persons aged 65 and older. However, it is expected that the income position of older people will be worsen due to the declining pension payments of new retirees and the increase in discontinuous employment trajectories as well as the insufficient spread in private old age provision. One of the reforms discussed for preventing rising poverty risks in old age is to consider life expectancy in the pension formula. This appears to be a promising means of reducing inequality within the group of pensioners, he states. The implicit redistribution within the statutory pension system due to the empirically well-known correlation between living standards and life expectancy will decrease, and the equivalence principle can be strengthened.

Drohende Altersarmut – neue Aufgaben für die Rentenversicherung?

Abstract The article gives an overview of the current development of old-age pover ty in Germany and classifies widely discussed concepts for the reform of statutory pension insurance. Although current indicators generally point to an increase in old-age poverty, the empirical data show no growth at present in poverty risk for persons aged 65 and older. However, it is expected that the income position of older people will be worsen due to the declining pension payments of new retirees and the increase in discontinuous employment trajectories as well as the insufficient spread in private old age provision. One of the reforms discussed for preventing rising poverty risks in old age is to consider life expectancy in the pension formula. This appears to be a promising means of reducing inequality within the group of pensioners. The implicit redistribution within the statutory pension system due to the empirically well-known correlation between living standards and life expectancy will decrease, and the equivalence principle can be strengthened.

Inequality and the political economy of education: An analysis of individual preferences in OECD countries

Scholarly interest in the study of education from the perspective of political science has increased rapidly in the last few years. However, the literature focuses on comparing education politics at the country level, neglecting the analysis of micro-level foundations of education policies in terms of individual preferences and their interaction with macro contexts. This paper provides a first step in addressing this research gap, engaging in a multilevel analysis of survey data for a large number of OECD countries. The core research question is how institutional contexts – in this case socio-economic and educational inequalities – shape the micro-level association between the individual income position and support for education spending. The core finding is that these different dimensions of inequality have different implications at the micro level. Higher levels of socio-economic inequality enhance the conflict between the rich and the poor over public investments in education. By contrast, when access to higher levels of education is effectively restricted, the rich are more likely to support public education spending. This is because higher levels of educational stratification ensure that further public investments in education benefit the rich relatively more than the poor, who in turn become less willing to support this kind of public spending.

The Elderly Poor in the EU's New Member States

To what extent is the financial position of the elderly in the NMS more vulnerable than that of the old member states (or the EU-15), due to a rather unfavorable starting point and the possible impact of pension reforms? This is the main issue of the current research report. It tries to delineate the vulnerability of the income position of elderly people in the NMS, in relation to the demographic, socio-economic and institutional context of these countries. More specifically, the report focuses on: the current level of income of the elderly in the NMS, and the degree of relative poverty; the way this position is related to the educational and labor market status of the elderly in the NMS, their retirement behavior, institutional arrangements (notably the pension system), and demographic developments; specific problems regarding the income position of possibly ‘marginal’ elderly groups in the NMS (such as single elderly female pensioners).

Growth effects of regional policy in Germany: results from a spatially augmented multiplicative interaction model

Private investment subsidies are a key instrument for regional policy making to foster the economic development in lagging regions. In this paper, we analyze their effect on labor productivity growth for German labor market regions for the period from 1994 to 2006. A spatially augmented multiplicative interaction model based on neoclassical growth theory is used, which allows us to assess the marginal effect of regional policy proxied by overall payments of the main German regional development program on the region’s convergence speed conditional on its initial income position as well as policy-related spillovers from its spatial neighborhood. Our results show a statistically significant positive effect of regional policy on labor productivity growth, which increases, the further away the supported region is from its steady-state income level, and the more grants are provided to its geographical neighborhood. The latter effect highlights the existence of positive spatial spillover effects from regional policy in Germany, which enhance the attractiveness of the whole macro region for private sector investments. The additional growth stimulus provided by a 1 % increase in the region’s funding volume is thereby related to an up to 0.3 % gain in terms of labor productivity growth. For regions with the highest initial gaps to steady-state income in the sample distribution, the regional policy stimulus accounts for almost 8 % of the regions’ productivity growth performance.

Uncovering the Impact of Intergenerational Income Mobility on Interpersonal Trust

Alluding to theories about relative economic status and behavior, this paper studies if relative income mobility, or the intergenerational change in income positions, affects interpersonal trust. Empirically, the question is brought down to an application with US General Social Survey data. For the identification of a causal relationship, I use a structural approach and estimate a recursive bivariate probit that controls for selection on unobservables. Results suggest that trust increases if children have achieved an upward income movement away from their parents' income position, and it decreases with the experience of downward income mobility. Policy implications are also discussed.

Excluding Institutionalized Elderly from Surveys: Consequences for Income and Poverty Statistics

Growing life expectancy and changes in financial, marriage and labour markets have placed the income position of the elderly at the center of scientific and political discourse. As a consequence, the last decades witnessed the publication of various influential reports that contained comparative statistics on old age income inequalities on the basis of international surveys. Common to these surveys is that they exclude the elderly who live in institutions. The divergence between the target population (e.g. the population aged 65 and over) and the survey population (e.g. the noninstitutionalized population aged 65 and over) that thus arises, might lead to important bias in the survey results. However, hardly any research has been conducted quantifying the direction and strength of this bias. This article tries to fill this gap and assesses the consequences of excluding the institutionalized elderly for the validity and international comparability of a number of indicators. Analyses with the Belgian Datawarehouse Labour Market and Social Protection show that the resulting bias is negligible for average equivalent pension income, but that assistance dependency among pensioners is underestimated by 10%. Furthermore, on the basis of international statistics, it is shown that the share of elderly in institutions varies substantially across countries. It is argued how this jeopardizes the international comparability of old age statistics. Finally, the article opens up a discussion on the meaning of lack of income and wealth among institutionalized elderly. It concludes that depending on how this question is answered, poverty will be under- or overestimated in countries with a high share of institutionalized elderly.

How does gender equality progress link to alcohol care and death? A registry study of the Swedish parental cohort of 1988/1989

This article examines how gender equality during early parenthood (1988-1991) associates with alcohol-related inpatient care or mortality (1992-2006). We categorised all Swedish couples having had a first child together in 1988-1989 (N=118,595) as traditional, or gender equal, or untraditional based on income and occupational position (bread-winning indicators), parental leave and temporary child care (child-care indicators). Overall, traditional women run lower risk, whereas traditional men and untraditional women (those opposing the traditional division of parenthood responsibilities) run higher risks of alcohol harm than their gender-equal counterparts.

Molecular Insights into DNA Polymerase Deterrents for Ribonucleotide Insertion

DNA polymerases can misinsert ribonucleotides that lead to genomic instability. DNA polymerase β discourages ribonucleotide insertion with the backbone carbonyl of Tyr-271; alanine substitution of Tyr-271, but not Phe-272, resulted in a >10-fold loss in discrimination. The Y271A mutant also inserted ribonucleotides more efficiently than wild type on a variety of ribonucleoside (rNMP)-containing DNA substrates. Substituting Mn(2+) for Mg(2+) decreased sugar discrimination for both wild-type and mutant enzymes primarily by increasing the affinity for rCTP. This facilitated crystallization of ternary substrate complexes of both the wild-type and Y271A mutant enzymes. Crystallographic structures of Y271A- and wild type-substrate complexes indicated that rCTP is well accommodated in the active site but that O2' of rCTP and the carbonyl oxygen of Tyr-271 or Ala-271 are unusually close (∼2.5 and 2.6 Å, respectively). Structure-based modeling indicates that the local energetic cost of positioning these closely spaced oxygens is ∼2.2 kcal/mol for the wild-type enzyme. Because the side chain of Tyr-271 also hydrogen bonds with the primer terminus, loss of this interaction affects its catalytic positioning. Our results support a model where DNA polymerase β utilizes two strategies, steric and geometric, with a single protein residue to deter ribonucleotide insertion.