The annual meeting of the Allied Social Science Associations started yesterday in San Francisco. The conference features hundreds of sessions covering a wide variety of economics research. Interesting papers are all over the place, so below are some of the papers that caught the eyes of Equitable Growth staffers during the second day of the conference.  

Tax Evasion and Inequality

Abstract: This paper proposes a method that combines macro and micro data to quantify and detect capital tax evasion in population-wide administrative data. At the macro level, we draw on official central bank data and recent leaks from a large Swiss bank to provide country-by-country estimates of the wealth hidden in offshore tax havens. We then attempt to allocate this wealth across individuals. We rely on samples of individuals who disclose previously hidden assets (e.g., in the context of a tax amnesty) and attempt to learn from the cross-border bank transfers made by the disclosers in order to detect the tax evaders who do not disclose themselves. We apply our method to a country with high-quality micro-data, Norway. We find that hidden wealth is extremely concentrated: more than half belongs to the top 0.01% richest households, and taking it into account erases half of the secular decline in wealth inequality seen when using tax data. Our results highlight the need to move beyond tax data to capture the true inequality of income and wealth, even in countries where tax compliance is thought to be high. Our method could be applied to improve tax collection and inequality statistics in a large number of countries where tax amnesty and bank transfer data are available to governments.

Do Noncompetes Chill Employee Mobility?

Abstract: We examine the nature of the relationship between noncompetition agreements and employee mobility. A noncompetition agreement (also known as a covenant not to compete, or simply as a noncompete) restricts the ability of an employee to work for a competitor (or start a competing business) after termination. These agreements are a remarkably common feature of the U.S. labor market across all industries, occupations, and income levels (Starr et al. 2015). Recent academic work and interest from policy makers has raised questions about the effects these agreements might have on an employee’s freedom to seek employment elsewhere. In this paper, we outline a basic model of employee mobility, and consider the potential consequences of noncompetes for the entire process of mobility. With this framework, and using data from the 2014 Noncompete Survey, we study how noncompetes are related to differences in search behavior, recruitment, job offers, and firm counteroffering behavior (separately studying technology and low-wage employees). We find that individuals with noncompetes are recruited and receive offers at relatively higher rates, and yet noncompetes are also associated with longer employment tenures. We consider some of the possible stories that would make sense of the patterns we identify.

Use It or Lose It: Efficiency Gains from Wealth Taxation

Abstract: This paper studies the quantitative implications of wealth taxation (as opposed to capital income taxation) in an incomplete markets model with return rate heterogeneity across individuals. The rate of return heterogeneity arises from the fact that some individuals have better entrepreneurial skills than others, allowing them to obtain a higher return on their wealth. With such heterogeneity, capital income and wealth taxes have different efficiency and distributional implications. Under capital income taxation, entrepreneurs who are more productive and, as a result, generate more income pay higher taxes. Under wealth taxation, on the other hand, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity. Thus, in this environment, the tax burden would shift from productive entrepreneurs to unproductive ones if capital income tax were replaced with wealth tax. This reallocation increases aggregate productivity. Second, and at the same time, it increases wealth inequality in the population. To provide a quantitative assessment of these different effects, we build and simulate an overlapping generations model with individual-specific returns on capital income and idiosyncratic shocks to labor income. Our results indicate that switching from capital income tax to wealth tax can generate large welfare gains through better allocation of capital. We study optimal taxation by allowing exemptions and progressivity.

Union Power and Inequality

Abstract: We look at the role of labor market institutions in explaining the increase in both gross and net income inequality in advanced economies since the early 1980s. Our main finding is a surprisingly strong relation between the decline in union density and the rise in top decile income shares. The relation appears largely causal and suggests that unionization matters for income distribution through a multiplicity of channels. Our results also suggest that a reduction in the minimum wage relative to the median raises inequality.

‘Twice as Hard for Half as Much’: Wealth Privilege and the Racial Wealth Gap

Abstract: The racial wealth gap is a stark and pervasive piece of the American landscape. Unlike the frequently cited disparities in educational attainment, occupational status, and household income, the racial wealth gap looms wider as it has resisted any mitigation over the past 50 years. Despite this record, the primary economic model on wealth accumulation – the Life Cycle Hypothesis – has nothing to say on the subject. In this paper, I offer an alternative model, what I call the Wealth Privilege model. This model simply examines the primary pathways that households accumulate wealth: household saving, asset appreciation, and family gifts and inheritances. For those with means, each pathway operates as a virtuous cycle enabling families to build wealth with increasing ease. For those with little wealth, they experience the same pathways as vicious cycles that limit their capacity to accumulate wealth. These disparate experiences give rise to the growing concentration of wealth.

Check out yesterday’s papers here, and come back tomorrow for the final installment.