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

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Tax evasion by the wealthy: Measurement and implications

Grant Year: 2018

Grant Amount: $68,422

Grant Type: academic

Measuring inequality is critical to understanding the nature of the challenge and its effects. This project aims to improve measurement of wealth inequality by understanding the extent to which tax evasion by the wealthy affects inequality measurements that rely on tax records. The authors combine administrative data on tax compliance, including audit results and the results of voluntary disclosure programs, and data leaked from financial and legal entities in recent years to explore the prevalence and scope of tax evasion by the wealthy. The researchers will use the improved estimates of tax evasion by the wealthy to construct revised estimates of income and wealth inequality in the United States.

Consumer protection law and mortgage markets

Grant Year: 2018

Grant Amount: $15,000

Grant Type: doctoral

This three-part project will empirically investigate the role of consumer protection laws on U.S. mortgage market outcomes and consumer welfare. Homeownership represents an important source of wealth for American families and is a primary source of wealth transfer across generations. But the housing crisis during the Great Recession disproportionately affected minorities and households at the lower end of the wealth distribution, precipitating calls for regulatory reform in mortgage markets to preserve the financial health of American households. Little evidence currently exists about the effect of particular legal regimes on the operation of the mortgage market. Specifically, this project asks whether laws providing new grounds for consumer or public enforcer lawsuits against mortgage providers can successfully improve consumer outcomes. Padi proposes to answer this question by looking at the effects of legislation and regulations passed in the states and assessing their impact by comparing results to those in neighboring states.

Do pass-through owners pass tax burdens through to their workers?

Grant Year: 2018

Grant Amount: $15,000

Grant Type: doctoral

Pass-through businesses—businesses whose owners pay tax on profits on their individual returns and which are not subject to the corporate income tax—have grown rapidly in importance over the past two decades. Yet even as little is known with confidence about who pays the corporate income tax, even less is known about who pays taxes on the income of pass-through businesses. Risch will explore the incidence of taxes on the income of pass-through businesses by investigating whether and to what extent the compensation of employees of certain pass-through businesses changes in response to changes in the tax rates on the businesses’ owners. To do this, he will use a linked owner-firm-employee dataset created from administrative tax records.

Posted wage rigidity

Grant Year: 2018

Grant Amount: $15,000

Grant Type: doctoral

This study will look at a key statistic for understanding wage rigidity: the rigidity of the wages of new hires. Theoretically, the wage level of new hires is important for making sense of variations in hiring across the business cycle. But there isn’t much empirical research on this statistic. Hazell is using data from online job vacancy postings to build a statistic that accounts for the changing composition of posted jobs as the labor market slackens and tightens.

Wealth taxation and evasion: Quasi-experimental evidence from Colombia

Grant Year: 2018

Grant Amount: $15,000

Grant Type: doctoral

This study leverages administrative data from Colombia to estimate the impact of wealth taxes on reported wealth and on the use of tax-evasion strategies. In addition, Londoño-Vélez examines the impact of the Panama Papers, which sparked a change in public knowledge about tax evasion, on reported wealth. These results will help establish an evidence base on which to make the case for reforms to the taxation of capital income, and inform academics and policymakers on the appropriate role of wealth taxation in that mix.

The macro-effects of unemployment insurance: A simulation-based discontinuity design approach

Grant Year: 2018

Grant Amount: $41,087

Grant Type: academic

Unemployment insurance was expanded several times during the Great Recession and its aftermath, with the maximum duration reaching up to 99 weeks in some states. Researchers have been debating the macroeconomic impact of those expansions on unemployment and employment, but little research exists on the macroeconomic effects of previous expansions. This project will fill this gap by looking at unemployment benefit expansions going back to 1976. Similar to previous research, the researchers will use “trigger notices” from the U.S. Department of Labor to see when programs were turned on. Their methodology, however, differs from previous research because rather than depending upon measurement error in the unemployment rate, their method allows them to look at the impacts when a program has multiple triggers. The researchers will then compare the effects of expansions during the Great Recession to previous expansions.

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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