Grant Category

Macroeconomic Policy

What are the implications of inequality on the long-term stability of our economy and its growth potential?

What are the implications of inequality on the long-term stability of our economy and its growth potential?

A larger share of U.S. national income has been flowing to the individuals at the top of the income and wealth ladder. These individuals are less likely to spend and more likely to save their money than those with lower income. There is evidence that growing income inequality may be contributing to the so-called secular stagnation of macroeconomic growth.

Growing income inequality likely bears on macroeconomic performance through other channels as well. The lower real interest rates that have resulted from higher global saving will limit the ability of conventional monetary policy to stabilize the economy in the next economic downturn. Growing inequality has also contributed to a growing sense that the economy isn’t working for most families, fueling both distrust in institutions and greater political polarization.

We need to better understand the implications of inequality on the long-term stability of our economy and its growth potential. The large and sustained rise in inequality across income and wealth groups, as well as the disparate performance of different geographies and demographic groups, make understanding how these trends could exacerbate economic instability and reduce economic growth a pressing national concern.

  • The effects of monetary policy
  • The effects of fiscal policy
  • The effects of the tax and transfer system
  • Political economy

Explore the Grants We've Awarded

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Does inflation inequality matter for monetary policy?

Grant Year: 2019

Grant Amount: $15,000

Grant Type: doctoral

This project will investigate how individual specific inflation rates affect the transmission of monetary policy. This research seeks to extend previous work to understand if inflation inequality matters for aggregate monetary policy response by using a quantitative model similar to Kaplan, Moll, and Violante to investigate how the joint-distribution between inflation rates and wealth (liquid and illiquid) matter for aggregate monetary policy response. Also, while inflation inequality between income groups and individuals differs over time, this work also seeks to uncover whether dispersion has increased, following income inequality trends. Nielsen Homescan consumer panel data will be used to measure household’s nondurable consumption.

The missing intercept: A sufficient statistics approach to general equilibrium effects

Grant Year: 2019

Grant Amount: $15,000

Grant Type: doctoral

How can estimates of microlevel causal effects be mapped into general equilibrium counterfactuals? Using a derivation of the central general equilibrium invariance result, this work studies general equilibrium counterfactuals for income tax rebate stimulus. The project develops a theoretically valid approximation of general equilibrium effects of spending and investment shocks in business-cycle models. It then uses estimates of responses to certain types of shocks to develop estimates of the impact of certain types of policies, which include general equilibrium effects. This research will add to our understanding of the effect of stimulus tools on the macroeconomy.

How does capital investment affect workers? Evidence from bonus depreciation and matched employer-employee data

Grant Year: 2019

Grant Amount: $55,000

Grant Type: academic

The extent to which capital and labor are substitutes and how this substitutability shapes worker outcomes is a key determinant of economic inequality. This project proposes to study the effect of bonus depreciation on worker outcomes using employer-employee matched Census data in order to understand whether capital investments in the form of new technologies are replacing workers and whether the impact is different for workers of various skill levels.

Market design responses to inequality

Grant Year: 2019

Grant Amount: $29,400

Grant Type: academic

Much of the theory of market design operates in two extreme environments: One where monetary transfers are prohibited, and one where there are transfers but each individual values one dollar in the same way. This research seeks to understand how to optimally design goods markets in the presence of wealth inequality and is conducted across three discrete research papers. The first project develops an analytic framework for a middle ground where agents are wealth constrained or have income effects. The second project develops a continuous-time model of dynamic capital taxation, and the third project considers dynamic effects of inequality using formal models.

Workers in the board room: The causal effects of shared governance

Grant Year: 2019

Grant Amount: $55,000

Grant Type: academic

Whether and how to involve workers in decision-making at the workplace is a fundamental question of the organization of firms and economies more broadly. This project proposes to use a novel research design to study a 1994 reform in Germany that sharply abolished employee board representation in newly incorporated firms with fewer than 500 workers in order to analyze the effects of shared governance on a variety of firm and worker-level outcomes, including wages, distribution of profits, and inequality of pay within a firm. The authors will use a regression discontinuity design that exploits the 1994 reform, supplemented with a difference-in-difference approach that compares changes among shareholder firms to changes among nonshareholder firms that were never subject to co-determination and thus were not affected by the reform. This will allow them to control for general economic trends that may have impacted firm and worker outcomes around the timing of the reform.

The Matching Multiplier and the Amplification of Recessions: Evidence from the LEHD

Grant Year: 2018

Grant Type: dissertation scholar

How does the differential exposure of workers to recessions contribute to the overall size of the recession? Does this heterogeneity in exposure to aggregate shocks occur within or between firms, and what does this mean for the effectiveness of various stabilization policies (Unemployment Insurance or Monetary Policy)?

Experts

Grantee

Stefanie Stantcheva

Harvard University

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Grantee

Nathan Jensen

University of Texas at Austin

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Research Advisory Board

Nancy Birdsall

Center for Global Development

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Staff

Heather Boushey

Washington Center for Equitable Growth

President & CEO

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Guest Author

Kimberly A. Clausing

Reed College

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