Share Of National Income Research Articles

Functional Income Distribution, Demand Driven Growth and the Middle Income Trap: The Case of China

It is critical for China to develop its domestic market demand and to engage in technological innovations to escape the Middle Income Trap. However, evidence suggests that China has been experiencing rising functional income inequality, manifested in the declining labor share in national income until very recently. The paper argues that functional inequality contributes to worsening income inequality. This in turn reduces average consumption propensity and dampens the consumption share of GDP. Further, the ‘market effect’ of income inequality could be more pronounced than the ‘price effect’, disincentivizing further innovations. Therefore, to gain growth momentum and graduate from the MIT, China must address functional income inequality through policy measures.

Wealth Transfers and Net Wealth at Death: Evidence from the Italian Inheritance Tax Records 1995–2016

In this paper we describe a novel source of data on the full record of inheritance tax files in Italy, covering up to 63% of total deceased. The work documents a substantial rise in the total value of inheritance and gifts as a share of national income, from 8.4% in 1995 to 15.1% in 2016. Consistent with the increasing role of total personal net wealth in the economy, the weight of inheritance and gifts in Italy appears relatively high by international standards. Over the same period, total wealth left at death has also become increasingly concentrated. The estates valued at least €1 million were worth 18.7% of total estate in the mid 1990s and 24.8% in 2016. This paper also documents that revenues collected from the inheritance tax underwent a threefold decline from 0.15% to 0.05% of total tax revenue between 1995 and 2016. Data also allow a disaggregated analysis by demographic and geographic characteristics. (Stone Center on Socio-Economic Inequality Working Paper)

The wrong kind of AI? Artificial intelligence and the future of labour demand

AbstractArtificial intelligence (AI) is set to influence every aspect of our lives, not least the way production is organised. AI, as a technology platform, can automate tasks previously performed by labour or create new tasks and activities in which humans can be productively employed. Recent technological change has been biased towards automation, with insufficient focus on creating new tasks where labour can be productively employed. The consequences of this choice have been stagnating labour demand, declining labour share in national income, rising inequality and lowering productivity growth. The current tendency is to develop AI in the direction of further automation, but this might mean missing out on the promise of the ‘right’ kind of AI, with better economic and social outcomes.

CAPITAL, GROWTH AND INEQUALITY IN PIKETTY’S APPROACH. A CRITICAL REVIEW

The paper is a critical review of Piketty’s book “Capital in the XXI Century”. The 950 pages of the French original, and the 696 pages of the English translation, are packed with so many topics, insights, comments and observations that affect almost all spheres of economics, that no single review can summarize them. This review will focus mainly on the factors which can explain the trends regarding the concentration of wealth and of personal income distribution. It will also present some features of the theoretical framework and discuss some of the aspects which can be considered weak from an analytical and methodological point of view. Piketty uses simple economic models to investigate how the ratio between the saving rate and the growth rate of the economy determines the capital-output ratio, and consequently the share of capital in the national income. When the rate of returns on capital rises more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth, and growing inequality takes place. “Capital is back because low growth is back”. Using the best available historical data, Piketty shows how the capital-output ratio, the capital share in national income, and the rate of return on capital, has evolved over time. Piketty discusses the changes observed, what the main social and economic forces at work are, why these forces change over time, and what we can predict about how the rate of return on capital will evolve in the twenty-first century. The last chapters discuss some policy proposals. Piketty claims that inequality is the result of policies. Only “good” policies can reverse a trend of rising inequality. It is necessary to introduce alternative policies because the composition of wealth is heterogeneous. Piketty suggests a progressive wealth tax on a global scale, based on the automatic exchange of bank information, not only as “useful utopia”, but as a proposal to think about and to discuss. In particular it would be necessary to adopt a progressive taxation on wealth on a worldwide level.

The economic significance of laws relating to employment protection and different forms of employment: Analysis of a panel of 117 countries, 1990–2013

AbstractThe authors use time series econometric analysis applying non‐stationary panel data methods to estimate the relationships between employment protection legislation and legal protection of different forms of employment (part‐time, fixed‐term and agency work), and economic outcomes, with a data set based on the Centre for Business Research Labour Regulation Index (CBR–LRI), covering 117 countries from 1970 to 2013. Findings suggest that these laws have become significantly more protective over time and that strengthening worker protection is associated with an increase in labour's share of national income, rising labour force participation, rising employment, and falling unemployment, although the observed magnitudes are small when set against wider economic trends.

The Wrong Kind of Ai? Artificial Intelligence and the Future of Labor Demand

Artificial Intelligence is set to influence every aspect of our lives, not least the way production is organized. AI, as a technology platform, can automate tasks previously performed by labor or create new tasks and activities in which humans can be productively employed. Recent technological change has been biased towards automation, with insufficient focus on creating new tasks where labor can be productively employed. The consequences of this choice have been stagnating labor demand, declining labor share in national income, rising inequality and lower productivity growth. The current tendency is to develop AI in the direction of further automation, but this might mean missing out on the promise of the right kind of AI with better economic and social outcomes.

How Have Automation and Trade Affected the Taxable Share of Covered Earnings?

Over the past few decades, U.S. income inequality has grown, with high earners experiencing disproportionate growth. This pattern has increased the top earners’ share of national income and reduced the share of earnings taxable by Social Security from 87.1 percent to 82.7 percent since 1994, weakening the program’s fiscal situation. Yet the drivers of earnings inequality, and thus the taxable share, are poorly understood. This paper combines data from several sources with administrative earnings records from the Social Security Administration to estimate the contribution of two factors to the declining taxable share between 1994 and 2015: industrial automation and trade with China. The effect of each factor on different sections of the earnings distribution is estimated through a series of instrumental variables quantile regressions. The resulting coefficients are used to construct a counterfactual 2015 earnings distribution, assuming the factors had remained constant at their 1994 levels.

Capital Shares and Income Inequality: Evidence from the Long Run

This article studies the long-run relationship between the capital share in national income and top personal income shares. Using a newly constructed historical cross-country database on capital shares and top income data, we find evidence on a strong, positive link that has grown stronger over the past century. The connection is stronger in Anglo-Saxon countries, in the very top of the distribution, when top capital incomes predominate, when using distributed top national income shares, and when considering gross of depreciation capital shares. Out of-sample predictions of top shares using capital shares indicates several cases of over- or underestimation.

Shock and awe? Fiscal consequences of terrorism

This article investigates how the frequency and severity of terrorism affect government finances in a large sample of 156 developed and developing countries over the period 1970–2016. The empirical results indicate that terrorism has a negative effect on tax revenue performance, especially in countries where terrorism has become endemic with frequent attacks and large numbers of fatalities relative to population, and that this effect becomes more pronounced in dynamic models accounting for potential endogeneity. Similarly, controlling for a plethora of economic, demographic and institutional factors, we find compelling evidence that terrorism is associated with a significant increase in military spending as a share of national income. These effects of terrorism on government operations and finance appear to be greater in countries where attacks are frequent and result in large numbers of fatalities. Our empirical findings also confirm that the state of public finances in developing countries is more vulnerable to acts of terrorism than those in countries that are richer and more diversified.

Offshore Bet: The Benefits of Capital Mobility

Offshore financial centres (OFCs) are alleged to be hotbeds of tax evasion. Their role in facilitating individual and corporate tax planning, which is entirely legal but politically controversial, has also come under the spotlight. However, OFCs play an important economic function. By mitigating instances of double and triple taxation, offshore centres raise aggregate investment. Their existence is also associated with better economic outcomes in the countries that surround them. The recent growth in the number and size of OFCs can be explained by three developments: an increase in the stock of investable capital, new investment opportunities outside Western Europe and North America, and the growth of tax and regulatory intervention by governments. As more investment capital is allocated across a diverse range of jurisdictions from investors around the world, the potential for multiple taxation increases. The role of OFCs in eliminating excessive taxation has a positive impact on investment returns which compounds over time. There is no evidence that the rise of OFCs has adversely affected the revenue-raising ability of other countries. For example, corporate tax revenue as a share of all taxes collected has grown slightly in the average OECD country since 1980. Nor is it true that OFCs levy no taxes: their average tax revenue as a share of national income is only six percentage points lower than across the OECD. OFCs do, however, rely on indirect (e.g. consumption) taxes rather than direct (e.g. income) taxes for revenue. Indirect taxes are often less distortionary. The popular account of offshore centres is an outdated caricature that bears little resemblance to how OFCs in fact operate. Undermining their existence would harm investment, economic growth and international capital flows, while the promised benefits from intervention are unlikely to materialise.

The Economic Significance of Laws Relating to Employment Protection and Different Forms of Employment: Analysis of a Panel of 117 Countries, 1990-2013

The authors use time series econometric analysis applying non‐stationary panel data methods to estimate the relationships between employment protection legislation and legal protection of different forms of employment (part‐time, fixed‐term and agency work), and economic outcomes, with a data set based on the Centre for Business Research Labour Regulation Index (CBR–LRI), covering 117 countries from 1970 to 2013. Findings suggest that these laws have become significantly more protective over time and that strengthening worker protection is associated with an increase in labour's share of national income, rising labour force participation, rising employment, and falling unemployment, although the observed magnitudes are small when set against wider economic trends.

Can Reducing Income Inequality Decouple Economic Growth from CO2 Emissions?

In the past two decades, income inequality has steadily increased in most developed nations. During this same period, the growth rate of CO2 emissions has declined in many developed nations, cumulating to a recent period of decoupling between economic growth and CO2 emissions. The aim of the present study is to advance research on socioeconomic drivers of CO2 emissions by assessing how the distribution of income affects the relationship between economic growth and CO2 emissions. The authors find that from 1985 to 2011, rising income inequality leads to a tighter coupling between economic growth and CO2 emissions in developed nations. Additionally, the authors find that increases in the top 20 percent of income earners’ share of national income have resulted in a larger association between economic growth and CO2 emissions, while increases in the bottom 20 percent of income earners’ share of national income reduced the association between economic growth and CO2 emissions.

Are Tax Expenditures Really on the Rise?

This paper challenges conventional wisdom that U.S. federal tax expenditures—laws providing special deductions, credits, rates, exclusions, and deferral of tax liabilities for certain groups and activities—have been increasing significantly in recent years. Using Treasury Department data, it shows that over the past three decades the size of tax expenditures, measured in terms of foregone revenue, has remained relatively stable both as a share of national income and as a share of government spending. Although tax expenditures have increased as a share of discretionary spending of late, this development reflects the decreasing importance of discretionary spending in the federal budget as much as the increasing salience of tax expenditures.

Labor Share in National Income: Implications in the Baltic Countries

Abstract Despite the fact that stability of labor share in national income is a key foundation in macroeconomic models, scientists acknowledge, that in the last three decades it has been declining around the world. The Baltic countries are not an exception; they follow similar patters to large economies, thus the research aims at determining economic factors at play. With the help of error correction model and time series data covering the past twenty years, we determine factors which contribute to the decline of labor share in the Baltic countries. We find significant long-term relationships between labor share and government spending, trade openness, and emigration. Government spending exhibits the highest contribution to variance of labor share in Lithuania, which also explains a large part of Latvia’s labor share variations. We find many similarities between the analyzed countries, however some differences are also visible.

Globalization and the Labor Share in National Income

Contradicting the conventional wisdom of constant factor shares, the portion of national income accruing to labor has been trending downward in the last three decades. This decline must have contributed to rising inequality as labor income is more evenly distributed than capital income. This study contributes to the literature on income inequality by exploring the role of globalization in driving the labor share. In particular, we focus on the impacts of trade openness and foreign direct investments (FDI) on the labor share. Using country-level panel data for 1980–2010, the study finds that trade is a significant and robust determinant of labor share. Generally speaking, export depresses while import increases the labor share. The impact of FDI, however, is insignificant. These results are similar for both developed and developing countries.

NEW RENTS ECONOMY - U.S. INEQUALITY IN THE 21ST CENTURY

ABSTRACT Rents in the U.S. economy now constitute a significant and growing fraction of national income. In effect, the post-industrial U.S. is becoming more like Saudi Arabia as these new rents arise in very concentrated form. Thus, policy is now obliged to focus more on distribution rather than the traditional emphasis on production and efficiency. The expanding impacts of trade and technology now combine with the increased production of 'knowledge goods' to sharply increase income inequality. The paper argues that the root cause of the inequality surge is the proliferation of new rents in sharp contrast to the Piketty's focus on capital accumulation in a neoclassical context. Once rents exceed a certain threshold (share of national income), then it is no longer permissible to maintain the neoclassical presumption that it can be neglected. Then the policy implications are completely revered - even revolutionary - with regard to the stance on redistributions, higher education, incentives and capital taxation, etc.

Thomas Piketty's Capital in the Twenty-First Century: Economic Analysis or Tract for the Times?

ABSTRACTI argue that the French economist Thomas Piketty's 2014 (American) bestseller Capital in the Twenty-First Century is not the treatise of economic analysis that its author purports it to be, but is rather a work of political partisanship making claims about the supposedly inevitable increase in the share of national income deriving from capital as opposed to labor—to the point where Chinese bankers or Middle Eastern oil sheiks might own “everything,” even people's bicycles, barring either world catastrophe or broad government intervention—that lack any empirical support or logical plausibility. As a professed heir to (what he understands to be) the spirit of the French Declaration of the Rights of Man and Citizen, as distinguished from the American Declaration of Independence, Piketty displays none of the respect for the rights of the individual—including the right not to have lawfully acquired property arbitrarily confiscated by government—that the original American political tradition entails. Nor, indeed, despite his profession of staking everything on “democracy,” does Piketty display any regard for the principle of self-government. Rather, his ultimate, admittedly “utopian” goal, outlined in Part IV of his book, is of a European “budgetary parliament,” selected in vague fashion by the existing parliaments of Eurozone members (not by the people themselves), that would hold sweeping powers to confiscate any privately owned wealth that its members regarded as “excessive” and redistribute it to others they deem more needy or deserving. This body would exacerbate all the difficulties resulting from the European Union's widely publicized “democracy deficit.” Yet Piketty implies it should ultimately be a model for world governance. Ultimately, his cause is the opposite of democracy: the unfettered continental or even worldwide rule of unaccountable bureaucrats, advised by “intellectuals” like Piketty himself, convinced that they know far better than their fellows how the latter should live their lives, and claiming the authority to regulate it accordingly.

Rebalancing in China-Progress and Prospects

China is transitioning to a greener, more inclusive, more consumer and service based, and less credit-driven economy. This paper defines a framework for assessing rebalancing, reviews progress, and discusses medium-term prospects. External rebalancing has advanced well, while progress on internal rebalancing has been mixed, with substantial progress on the supply side, moderate progress on the demand side, and limited progress on the credit side. Rebalancing on income equality and environment has also been mixed, with the energy intensity of growth falling and labor's share of income rising, but income inequality and local air pollution remaining very high. Going forward, the high national saving is expected to fall owing to demographic change and a stronger social safety net, while the investment ratio is expected to fall similarly, with increasing competition and profit normalization as growth slows. The service sector will continue to gain importance, helping reduce the carbon intensity of output and increase labor's share of national income and household consumption. Reducing the credit intensity of growth is likely to progress slowly unless decisive corporate restructuring and SOE reforms are implemented.

Social Democracy and the Labor Share of National Income in Affluent Capitalist Democracies

Complementing the existing literature that focuses mostly on the personal distribution of income, this paper studies how social democratic governments affect the factor distribution of national income between capital and labor, in the corporate sector. Drawing from the literature on partisanship and macroeconomic performance, I show that, conditional on strong corporatism, left governments increase the capital/labor input ratio in the corporate sector. I connect this finding to the literature on the labor share, which suggests that a higher capital/labor ratio reduces the labor share when labor is low-skilled but increases the labor share when labor is high-skilled. Drawing from data across 15-18 OECD countries (1985-2005), I show that left governments tilt the division of income in favor of labor when labor is high-skilled, but in favor of capital when labor is low-skilled. Furthermore, left partisanship influences the labor/capital division of income only when corporatist institutions are strong.

Global Financial Crisis and educational restructuring

“Financialisation” is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future, or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work product or service to an exchangeable financial instrument. It is an aspect of increased symbolization, mathematization, and computerization of financial markets that are trends within knowledge capitalism. Neoliberalism is an expression of the power of finance that has gathered pace with the internationalization of capital and the globalization of markets. Some scholars suggest that neoliberalism and globalization are themselves expressions of finance, closely tied to the development of derivatives markets and the evolution of an international financial system where the international rentiers have managed to significantly increase their share of national income on the basis of systematic fraud, corruption, and widespread criminalization of financial practices. The current financial crisis is a systemic crisis of the entire capitalistic system based on interconnected global financial markets. This is a fundamental shift that represents the financialization of the reproductive sphere of life itself. Under this regime, the monopolization and privatization of knowledge and education has proceeded rapidly. One of the effects of financialization and the economic crisis has been to popularize a debate on budget cuts and “austerity politics” across the board for public services provided at the state level with massive cuts to education in all aspects, attacks on collective bargaining, and the sacking of thousands of teachers. This paper will explore education in the age of financialization and the Global Financial Crisis.