Unearned Income Research Articles

Is Leisure a Normal Good? Evidence from the European Parliament

Prior to July 2009, salaries of the members of the European Parliament were paid by their home country and there were substantial salary differences between parliamentarians representing different EU countries. Starting in July 2009, the salary of each member of the Parliament is pegged to 38.5% of a European Court judge's salary, paid by the EU. This created an exogenous change in salaries, the magnitude and direction of which varied substantially between parliamentarians. Parliamentarians receive per diem compensation for each plenary session they attend, but salaries constitute unearned income as they are independent of attendance to the Parliament. Using detailed information on each parliamentarian of the European Parliament between 2004 and 2011 we show that an increase in salaries reduces attendance to plenary sessions and an increase in per diem compensation increases it. We also show that corruption in home country has a negative effect on attendance for seasoned members of the Parliament.

Labour Force Participation And Employment In South Africa: Evidence From Wave 1 Of The National Income Dynamics Study

The authors use wave 1 of the NIDS dataset to describe salient features of the South African labour market across different stages of the life cycle. These include a high unemployment rate for all ages, particularly amongst the youth. Low levels of labour force participation in general are observed, and labour force withdrawal amongst the elderly occurs at relatively early ages. We use multivariate regressions to consider how education, family support structures, unearned income and health measures correlate with these patterns. Poor health is one reason that people of all ages in South Africa leave employment and the labour force. Retrenchment is the most frequent reason that people who are not employed report for why they left their most recent employment. Several important questions about labour market dynamics will become tractable once more waves of the dataset become available.

Pensions and Retirement Among Black Union Army Veterans.

I examine the effects of an unearned income transfer on the retirement rates and living arrangements of black Union Army veterans. I find that blacks were more than twice as responsive as whites to income transfers in their retirement decisions and 6 to 8 times as responsive in their choice of independent living arrangements. My findings have implications for understanding racial differences in rates of retirement and independent living at the beginning of the twentieth century, the rise in retirement prior to 1930, and the subsequent convergence in black-white retirement rates and living arrangements.

Reform Options for the Estate Tax System: Targeting Unearned Income, Testimony Before the U.S. Senate Committee on Finance

This testimony makes three main points. First, inheritances tend to exacerbate existing economic disparities and may be the most important barrier to intergenerational economic mobility. These tendencies are most pronounced at the top of the income distribution. While inherited income is distributed fairly evenly across most of the population, it rises sharply at the very top. Second, the estate tax system is the most important mechanism by which the current fiscal system mitigates the effect of inheritances on economic disparities and intergenerational mobility. The burden of the estate and gift taxes falls largely on heirs, not donors. Moreover, on average, it rises rapidly with the amount the heir inherits and his economic income. Nevertheless, the relationship between the heir’s financial circumstances and his or her estate tax burden is relatively imprecise. Third, upcoming legislative changes create an opportunity to better focus the estate tax system on the unearned income that inheritances represent. We should use that opportunity to reform, not repeal, the estate tax system so that it continues to tax inherited income but in a more equitable manner. Two reform options are discussed. The first would replace the estate tax system with a comprehensive inheritance tax, under which heirs would pay tax on extraordinary amounts of inherited income at roughly the same rate that presently applies to earned income under the income and payroll taxes. The second would retain the estate tax but better focus it on the amount transferred as a proxy for the amount received. It would do so through a package of simplification reforms that would limit the extent to which the tax burdens on heirs depend on their access to sophisticated tax advice.

Nickels and Dimes Won’t Fix This

The global recession has made researchers and policy makers ask a broad set of questions about the future of work and pay in America. This article examines three recent books, Pollin et al.’s A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States (2008), Devault’s People at Work: Life, Power, and Social Inclusion in the New Economy (2008), and Bartik and Houseman’s A Future of Good Jobs? America’s Challenge in the Global Economy (2008) for insights on this issue. From diverse methodologies and disciplinary perspectives, each helps to highlight that the most basic of all economic fundamentals is good jobs with good wages. The current economic downturn provides researchers and policy makers with an opportunity to examine critically the cumulative damage done to the American middle class by policies that ignore these economic fundamentals in favor of policies that favor unearned income while promoting easy credit and debt to disguise downward mobility.

Building Sustainable Communities on Ecological Principles

The limited life of biota provides an ecological principle for building a global society composed of self-financing, self-reliant, self-governing communities. Implementation requires communities to limit the life for owning realty, corporations and money. Limited life money and credit created by traders and investors become redeemable into units of local renewable energy. Ponzi banks and unearned income from money are eliminated. Incentives provided to attract foreign enterprises and technology are matched with built-in ownership transfer back to stakeholders resident in the community to terminate draining away surplus profits. Urban land ownership is mutualised to form self-financing Land Banks to halve the cost of new housing and attract commercial investment. This minimises non-residents extracting windfall gains and surplus profits that can make communities financially dependent on higher orders of government. Centralised big government, taxes and banking are replaced with federations of bioregional economies financing nation states that in turn finance global governance.

Taxation and the Earnings of Husbands and Wives: Evidence from Sweden

This paper examines the response of husbands' and wives' earnings to a tax reform in which husbands' and wives' tax rates changed independently, allowing me to examine the effect of both spouses' incentives on each spouse's behavior. I compare the results to those of more simplified econometric models that are used in the typical setting in which such independent variation is not available. Using administrative panel data on approximately 11% of the married Swedish population, I analyze the impact of the large Swedish tax reform of 1990-1. I find that in response to a compensated fall in one spouse's tax rate, that spouse's earned income rises, and the other spouse's earned income also rises. I test and reject a set of models in which the family maximizes a single utility function. A standard econometric specification, in which one spouse reacts to the other spouse's income as if it were unearned income, yields biased coefficient estimates. Uncompensated elasticities of earned income with respect to the fraction of income kept after taxes are over-estimated by a factor of more than three, and income effects are of the wrong sign. A second common specification, in which overall family income is related to the family's tax rate and income, also yields substantially over-estimated own compensated and uncompensated elasticities. Standard econometric specifications may substantially mis-estimate earnings responses to taxation.

Electronic Money: Its Economic, Social, Political, and Environmental Impact

As a potential disruptive technology electronic-money raises fundamental questions on the role of money, how it should be designed, issued and managed. The 2008 financial crisis created the opportunity and need to rethink the role and design of the financial system. The now Governor of the Bank of England raised the possibility that “Free Banking” and/or decentralised banking could replace Central Banks. Profound changes would result in the power of governments, business and the nature of democracy. Four different historical types of money are considered for rebuilding the financial system with e-money: (i) the monopoly form of synthetic or “fiat” money as decreed by governments that can earn interest (ii), fiat money that does not earn interest but has a usage fee (iii) “Free-money” issued privately with a usage fee and (iv) natural money redeemable into specified goods and/or services with a usage fee. Market forces are identified that would favour the adoption of e-money with a use fee redeemable into units of renewable electricity. These arise from: (a) creating a stable unit of local value negating the need for Central Banks; (b) money no longer a store of value; (c) improved equity by reducing unearned income; (d) reversing financialization with real assets becoming more attractive; (e) facilitating steady state economies with a global unit of account but not of value; (f) promoting sustainability by making finance intensive renewable energy more attractive than burning carbon; (g) facilitating community banking (h) mitigating the social power of money and (i) enriching democracy.

What determines female autonomy? Evidence from Bangladesh

This paper examines the determinants of female autonomy within households in a developing country. In particular, we investigate the relative contributions of earned versus unearned income in enhancing women's autonomy and the role of employment outside of their husband's farm. In a simple theoretical model, it is demonstrated that earned income could be more important than unearned income in empowering women. Using data from rural Bangladesh, empirical estimations confirm this prediction and also reveal the surprising fact that it is not employment per se but employment outside their husbands' farms that contributes to women's autonomy. The data also point to the importance of choosing the correct threat point in theoretical analyses of female autonomy.

Replacing the Estate Tax with a Re-Imagined Accessions Tax

This article proposes replacing the federal estate and gift tax system with an accessions tax. An accessions tax is a tax, at progressive rates, on the aggregate lifetime gratuitous receipts of an individual in excess of a specified exemption. The main thesis of this article is that an accessions tax is not simply a reverse image of the current estate tax system, but is significantly different both in purpose and effect. An accessions tax should be an easier pill to swallow than the estate tax, because it is a tax on the unearned income (accessions to wealth) of individuals. In operation, the accessions tax can avoid many of the loopholes in the estate tax, because the accession can occur after the transferor's death. Accessions would be taxed only when realized in cash or assets that are not hard to value. Thus, only trust distributions (as opposed to the acquisition of trust interests) would be taxed. Accordingly, actuarial tables would be irrelevant, and general powers of appointment would be ignored. Taxation of qualified hard-to-value property (such as interests in a closely-held business) would be deferred to conversion to cash (or other event whereby qualification lapses). Accessions by charities and by the spouse of the transferor would be excluded, as would transactions (such as one person purchasing the consumption of another) that do not involve true wealth transfers. Elaborate qualification rules for the spousal and charitable exclusions would not be necessary.

Employment dynamics of Greek married women

PurposeThis paper investigates the employment dynamics of Greek married women.Design/methodology/approachLongitudinal/panel data for the period 1995‐2001 and dynamic discrete choice models are used for estimation purposes.FindingsIt is found that the probability of being employed is influenced by observed individual characteristics (e.g. human capital, fertility and unearned income), while genuine state dependence and unobserved heterogeneity constitute major sources of observed serial persistence. The results show that lagged employment affects current employment decisions in a systematic way, and that the non‐contemporaneous effects of unearned income and fertility correlate with unobserved heterogeneity. The estimated average partial effects reveal that an employed woman in t−1 has a probability of being employed in t that is almost 50 percentage points higher than for a non‐employed woman.Practical implicationsThe presence of state dependence and unobserved heterogeneity imply that the bridging of the female employment gap between Greece and its EU partners is expected to follow a slow, long‐term course.Originality/valueGreek female labour force participation has been studied only under a static analytical framework. This is the first study to investigate employment decisions of Greek married women in an inter‐temporal setting.

The Perils of Unearned Income

In addition to the internal risk of deposition, which is modeled using selectorate politics (Bueno de Mesquita et al. 2003), leaders risk being deposed by mass political movements such as revolutions. Leaders reward supporters with either public goods, which reward the whole of society, improve economic productivity, and increase the ability of revolutionaries to organize, or private goods. If confronted with a revolutionary threat then leaders respond by either suppressing public goods—which prevents revolutionaries organizing—or increasing public goods, so citizens have less incentive to rebel. Unearned resources, such as natural resource rents or aid, increase the likelihood of revolutionary onset and effect how leaders best respond to the threat. The results address the resource curse, the potentially pernicious effects of foreign aid and incentives to democratize.

Labor Supply in Response to Remittance Income: The Case of Mexico

The growth in the flow of international remittance income in many developing countries has increased attention towards remittances as a development mechanism. This study attempts to understand to what degree labor patterns are affected by the receipt of remittances. Using nationally representative household income and expenditure data for Mexico, I analyze the effect of remittance income on labor supply decisions. I find that household labor supply in response to remittance income is consistent with findings which measure labor supply behavior in the presence of other forms of unearned income in different settings. That is, remittance receipts are associated with fewer hours of work and income elasticities are estimated in the range of -.006 to -.03. This finding attenuates to some degree the measure of the impact of remittances in the receiving country's aggregate output.

Compensation of Veterans with Psychiatric or Substance Abuse Disorders and Employment and Earnings

Using a national sample of veterans, we examined the relationship between disability income and employment, adjusting for health status and other factors. Veterans Affairs disability income payments had no globally detrimental effect on labor force participation, in that the likelihood of employment was reduced only at payment levels of more than $800 per month. Although unearned income from other sources also did not have a substantial negative effect on labor force participation, veterans who received benefits from the Social Security Administration or welfare payments were less likely to be employed, mostly likely because employment earnings above a certain level in some programs may result in the loss of monetary benefits and health insurance.

Primary physician services—List size and primary physicians’ service production

The regular general practitioner scheme was introduced in Norway in 2001. A patient list system in combination with a partial per capita financing system for primary physician services was then introduced. The focus of this research was to study how the patient list system influences patients’ accessibility to primary physicians, and how the system influences primary physicians’ service production. We studied two possibilities: First, some physicians can have an incentive to acquire a long patient list in order to ensure a high unearned income from per capita payment. This can lead to rationing of consultations. Second, physicians with short lists can have an incentive to increase their service production per consultation in order to compensate for lack of income. This leads to increased costs. The research questions were investigated empirically using two large sets of national data. Two of the main findings were that long lists do not lead to rationing, and short lists do not increase service production per consultation.

Making Work Pay

In the 1990s, many states liberalized statutory rules regarding the tax treatment of earned and unearned income for welfare program eligibility and benefit levels. I use quality control data from the AFDC/TANF program over 1983–2002 to document changes in the corresponding effective tax rates and benefit guarantees. After welfare reform I find that effective tax rates fell by 50 percent on earned income and by at least 70 percent on unearned income. States that aggressively reformed their welfare programs, especially those that implemented a stringent sanctions policy on benefits, experienced more rapid reductions in effective tax rates and guarantees.

Trabalho doméstico: inatividade econômica ou trabalho não-remunerado?

Abrigado sob a rubrica afazeres domésticos nos levantamentos do IBGE, o trabalho doméstico realizado por donas de casas sempre foi considerado inatividade econômica, igualando-o à condição de estudantes, aposentados, inválidos e aqueles que vivem de renda. Permanece assim na invisibilidade nas estatísticas oficiais, apesar da reformulação ocorrida no começo da década de 90. O artigo pretende oferecer contribuição ao tema, analisando o número médio de horas semanais dedicadas à realização de "afazeres domésticos", segundo variáveis consideradas relevantes, e defende a tese que, sendo elevado o número de horas que as pessoas, em sua maioria mulheres, se dedicam a estas tarefas, seria legítimo incluir esta categoria como um trabalho não-remunerado em vez de inatividade econômica.

Political Development, Agriculture, and Ethnic Divisions: An African Perspective

Abstract: In this paper it is argued that political development is the key to long‐run growth in developing nations. Political development is seen to be dependent on the extent to which a state or ruling elite's income is earned or unearned. The availability of earned income is linked to the structure and productivity of the agricultural sector. Applying the analysis to the sub‐Saharan African experience involves taking into account three factors: the international environment, the ethnic division of societies as a result of colonization, and the urban bias which characterized the economic strategy of the newly independent African states. As a result, agriculture collapsed, the ruling elite became increasingly dependent on unearned income, political underdevelopment occurred. The collapse of state authority significantly impoverished the region and resulted in significant civil conflict. Any long‐run solution must incorporate a broad‐based expansion in agricultural productivity.

The economic consequences of health shocks: Evidence from Vietnam

This paper finds that the incomes of urban households are more vulnerable to health shocks than rural households, that health shocks may precipitate increases in unearned income that partially offset reductions in earned income and large increases in medical spending even among insured households. It also finds that households spend less on food following a health shock, but more on budget items such as housing and electricity. Measures of household health shocks used include a recent death of a working-age household member, a long inpatient spell, and a recent sizeable drop in the body mass index of the household head.

Academic Performance and Part-Time Employment among High School Seniors

Abstract This study estimates the effect of hours worked at a part time job on GPA among 12th grade respondents to the annual 1991–2004 Monitoring the Future surveys. I use two stage least squares (2SLS) with indicators for various levels of unearned income, which are strong predictors of hours worked, as instruments. Results show that GPA increases with additional work hours up to 15 per week and then declines. 2SLS estimates are substantially larger than those from ordinary least squares and robust to exclusion restrictions variations. Working has a small negative impact on educational time, but a much larger quadratic impact, which is negative up to 15–20 hours per week, on time spent watching television and in social activities. Effects are stable across the sample period, larger for females, non-whites and metropolitan area residents, and linearly positive but substantially smaller for students with high future discount rates.