Suchergebnisse

Jeffrey Miron


This article appeared on Substack on June 19, 2023
A common view attributes economic inequality to the evils of markets—greed, corruption, family connections, luck, and so on—rather than to differences in economic productivity.
Some wealth is no doubt "ill‐​gotten," or at least not directly related to one's own contribution to the economic pie.
Yet many differences in economic success result from government interventions that create winners and losers, and in arbitrary or even perverse ways.
Government licenses to become a lawyer, doctor, hair braider, plumber, or other professional raise the income of those who obtain these licenses, regardless of whether more talented.
Zoning regulation protects the wealth of those lucky enough to have bought land before such restrictions existed.
Much regulation, of all kinds, imposes substantial fixed costs. Larger firms more easily absorb these, while small firms face a greater barrier to entry. Regulation also creates the opportunity for less principled businesses to game the system, implying honest firms lose out.
When governments build schools, roads, hospitals, office buildings, military equipment, and other infrastructure, they contract out with private firms. Ideally government chooses the most efficient firm, but in practice cronyism and corruption play substantial roles.
Restrictive immigration policies prevent people in poor countries from earning substantially higher wages.
Medicare reimbursement rules reward less scrupulous health care providers, who manipulate billing codes to maximize their revenues.
Taxpayer‐​funded universities transfer wealth to families with more college‐​bound children.
Government protections for unions raise member wages but cause others to be underemployed. Minimum wage laws have similar effects.
Rent controls discourage construction of new housing, raising costs for those who fail to secure controlled apartments.
The corporate income tax penalizes not just shareholders but customers and employees, who are often less well off.
Progressive or complicated tax codes create lucrative incomes for the lawyers and accountants who help individuals and businesses avoid or evade these features.
I could go on, but you get the point!
The fact that government causes these arbitrary redistributions is not, by itself, reason to avoid all intervention. If a policy generates large benefits, any resulting mal‐​distribution might be a necessary evil.
In a few cases, moreover, redistribution is the flip side of a potentially beneficial effect. Patents and copyright create monopoly profits that incentivize innovative or creative activity, perhaps benefitting society overall.
Nevertheless, policy evaluations should recognize the scope for arbitrary redistribution as one negative side effect of interfering with free markets.
Likewise, any discussion of redistribution should recognize that government, rather than the free market, is often the bigger offender.

When we talk about policy choices around redistribution there is an assumption so obvious that most people never question it. That politicians are more responsive to the desires of the rich, and that policy preferences of the poor don't hold as much sway. But what if that assumption was wrong?

In a recent paper by Boston University Economist Raymond Fisman titled "Whose Preference Matter For Redistribution: Cross-Country Evidence" uses cross-sectional data from 93 countries to see how much a government redistributes lines up with how much redistribution citizens of different socioeconomic statuses actually want. The findings are surprising.

There's no question that people in the United States have very different beliefs about meritocracy and redistribution than do people in Europe. But how did these two groups end up in these divergent equilibria? And can anything be done to shift from one to the other?

These are the questions Princeton economist Roland Benabou asks in his classic paper, "Belief In A Just World And Redistributive Politics," which is co-authored with Jean Tirole. Their modeling of these dynamics gives us some possible answers for why redistribution has such a difficult time politically in the United States—and how that could change.

The LSE Phelan US Centre’s Capitalism Essay Competition asked LSE Master’s students to address the question, "How should the United States work to shape the future of capitalism in this age of insecurity?” In this runner-up essay, Manickam Valliappan writes that rising inequality is a clear signal that there are defects in capitalism that warrant … Continued

In the past, excessive economic inequality has ended… badly. As Charlotte Cavaillé points out in her new book that studies the public's reaction to rising inequality, "only mass warfare, a state collapse, or catastrophic plagues have significantly altered the distribution of income and wealth." Will this time be different? Through income redistribution, democratic and political […]
The post Rising inequality isn't driving mass public support for redistribution: Charlotte Cavaillé's 'Fair Enough? explains why not. first appeared on Center for Political Studies (CPS) Blog.

French economist Thomas Piketty is one of the leading intellectuals documenting inequality, with his 2013 book "Capital in the Twenty-First Century" becoming widely read and cited. His new book, "A Brief History of Equality," is more optimistic: In it, Piketty documents how our world has become relatively more equal since the end of the 18th century.

In this unedited conversation, Piketty talks to Bethany and Luigi about the lessons from this movement toward equality and where it could go next – especially regarding policy choices such as taxes, reparations, and redistribution toward more racial, democratic, and global equality. Among others, they discuss: Would people favor massive redistribution? What kind of institutions would be required to oversee markets? Can true progress be achieved without equality?

Existing analyses have failed to emphasise inflation's underlying distributional sources and outcomes. Rafael Wildauer, Karsten Kohler, Adam Aboobaker and Alexander Guschanski present a macroeconomic model that analyses how energy price shocks trigger redistribution between workers and firms, and between different sectors of the economy. For them, a windfall tax can redistribute energy profits towards workers, a … Continued

Scholars across the Global Development Institute are convening or co-convening a range of exciting panels at this year's Development Studies Association Conference, taking place at SOAS between 26th and 28th June 2024. The event theme is 'Social justice and development in a polarising world', allowing attendees to explore issues surrounding rights and representation, redistribution and […]
The post Development Studies Association Conference 2024 – Call for Papers Open appeared first on Global Development Institute Blog.

EU regional policy spending accounts for about a third of the EU’s total budget. It is the EU’s main mechanism for financial redistribution. In addition to supporting jobs, economic growth, sustainable development and so on, one of its key stated aims is to underpin European solidarity. In this way it is a key part of […]
The post Brexit boost? Did the EU referendum improve the awareness of EU regional policy in the UK? appeared first on Local perspectives on Europe.

Our Sam Bowman takes to the Sunday Times to point out how comparatively poor Britain is. Why has Britain become so poor?Even eastern Europe is catching up with our sluggish GDP. Our politicians have been slow to act, but economists say there's still reason for hopeIndeed so. But while we can point out that Britain is poorer than Mississippi - the poorest US state - that doesn't necessarily hit home with people. But little throwaway lines might, indeed should.Like this one:Bilodeau and scores of other women online are bragging about their work setup using the hashtag #lazygirljob. To fans, the ideal lazy-girl job is one that can be done from home, comes with a chill boss, ends at 5 p.m. sharp and earns between $60,000 and $80,000 a year—enough to afford the basic comforts of young-adult life, yet not enough to feel compelled to work overtime. Veterans of such jobs say roles such as "digital marketing associate," "customer-success manager" and "office administrator" are good bets for achieving the lazy-girl lifestyle.Clearly, there are a number of comments possible here. One being "In your dreams". Another being that the money isn't everything crowd are quite right, people will work less and enjoy other parts of life when given the chance - when their income meets the physical lifestyle they desire.We can even think of that target income as just that, a target (a target that appears easily achievable working in a Texas supermarket). But think about what that target means. The basics of the young adult life are $60 to $80k. That's the standard of living they're expecting. That's a rich, rich, country compared to the median pay of £27k or so ($34k, at market FX rates) in Britain. In fact, that lazy girl income, the one defined as covering those young adult basics, is in the top 10% of UK incomes.Which is the proof of what we are missing by not having that economic growth. The proof of how comparatively poor we are. Even, compared to the US we're all in relative poverty. In fact, we pretty much are. Median US household income is some $71k. Median UK is £34k. Or £57k to £34k, which means that, given the definition of relative poverty as below 60% of median household income then yes, the median UK household is in poverty by US standards.That's what we're missing out upon. And it's difficult to start arguing that the UK is more free market, less oppressed by politics and redistribution than the US is. Therefore, logically, to gain that living standard they've got we should be more free market and less burdened by politics and redistribution. Government in the United States takes some 26 to 27% of everything to feed its maw. Here in Britain at present it's more like 45%. Which gives us that very interesting target - let's slash government by 20% of GDP so we can all have lazy girl jobs. Wouldn't that be fun?

Will the United States renew its funding for Ukraine's defensive war against Russia? Congress is having difficulty deciding the answer to this question, with Republicans still committed to withholding consent until President Biden agrees to bolster security at the U.S.-Mexico border. With political support for Ukraine looking shaky, the White House is nervous — and rightly so. In a drive to convince lawmakers of the necessity to arm Ukraine, President Biden last year took to emphasizing the economic benefits for communities across the United States. The intuition behind this strategy was that many voters might wrongly assume that "aid to Ukraine" means wiring huge sums of money to bank accounts in Kyiv. In fact, much of America's military aid comes in the form of in-kind contributions, such as arms and ammunition taken from existing U.S. stockpiles. If Congress votes to finance more support for Ukraine, the lion's share of this funding will go to domestic firms tasked with replenishing the Pentagon's own armories. Viewed in this light, aid to Ukraine starts to look a lot more attractive to people who adopt a narrow definition of the national interest. Who could oppose billions of dollars being allocated to U.S.-based businesses and their workers? But while there are many good reasons to put U.S. resources behind Ukraine's war effort, boosting the economic fortunes of ordinary Americans is among the very weakest.Most obviously, it is badly misleading to characterize the funds being spent on arming Ukraine — at least $68 billion so far — as a windfall. To listen to President Biden, one would be forgiven for believing that military spending is free money, available to U.S. manufacturers if only Congress would get out of the way. In reality, of course, these are Americans' own tax dollars — that is, money being taken out of the pockets of ordinary people, not money being given to them. It is always true that Congress can appropriate funds for the purpose of wealth redistribution. Aid to Ukraine is not special in this regard.One way that military spending is distinctive, however, is in terms of how unequally defense dollars are distributed. This is because firms belonging to the defense sector are not spread evenly across the United States. They are concentrated in certain locales — Tarrant County in Texas, Fairfax County in Virginia, and El Paso County in Colorado, for example.Military spending only ever flows to these parts of the country that host arms manufacturers, aerospace companies, and the like — a non-contiguous region of the United States that some scholars have called the "gunbelt" because of its economic reliance upon militarism.By contrast, Pentagon liberality only rarely has a direct impact upon local economies that are centered on other industries. In short, whenever military spending is increased, it just means that communities already accustomed to receiving large quantities of defense dollars are given even more than usual.This is why, as the Department of Defense's own maps show, over a dozen states have received no major influx of cash as a result of aid to Ukraine.It is true, then, that aid to Ukraine might bolster the economic fortunes of select parts of the country. But why should taxpayers across the whole of America cheer the flow of federal dollars toward just some towns and cities? This question is asked not nearly enough.To be clear, states belonging to America's gunbelt already receive tens of billions of dollars in federal spending each year. There is nothing untoward about this; it is a mundane economic consequence of the United States having a large defense budget. That money has to be spent somewhere.But there is nothing progressive or communitarian about giving these communities billions more. Indeed, it is borderline repugnant to expect popular gratitude in return for grossly inequitable wealth redistribution.One possible rejoinder to this argument is that military outlays are not supposed to be equitable, so nobody should be outraged if money spent aiding Ukraine benefits some Americans more than others. After all, the Pentagon distributes cash as a means of funding a strong national defense, not to boost the fortunes of particular geographic locales or demographic groups.But this is exactly the point: military spending is not a social program and should not be justified as such. If there are Americans who benefit economically from U.S. foreign and defense policies such as assisting Ukraine — and, of course, there are — then this should be recognized as an incidental outcome, not a goal that is being maximized because of adroit and intentional public policy.For anyone interested in improving the welfare of ordinary Americans, military spending should not be the mechanism of choice for doing so. Defense outlays are a form of wealth redistribution, but only in a regressive sense — hardly something to be celebrated.President Biden has made no secret of his belief that the war in Ukraine affects core U.S. national interests. He should continue making this case in compelling terms. Arguments that draw attention to the local-level economic implications of aid to Ukraine are not his strongest suit.

The Negative Income Tax (NIT) and the Universal Basic Income (UBI) schemes are often mistakenly interpreted as the two sides of the same coin. This is mainly because both policies aim at tackling poverty through redistributive taxation. However, both from an economic and ethical standpoint, these two policies present differences that should not be disregarded.Economically, a NIT can be understood as a tax system associated with a tax deduction, as it proposes a scheme where at the "break-even" level of income, households pay no income tax. Above this level, households pay tax at a constantly increasing marginal rate on each additional pound while, below this level, they receive a payment of such rate at an inverse ratio. In the case of NIT, we can therefore observe a tax transfer (represented by the area NTO in Figure 1) that diminishes as income increases at a rate of -t and becomes zero when an individual's income reaches the threshold T. Once income surpasses this threshold, taxpayers begin to pay a positive tax, quantified by the area TAB.On the other hand, the UBI scheme entails the regular distribution of a uniform cash payment to individuals, irrespective of age, without any conditions attached. Realistically, a millionaire will receive the same payout as those currently on Universal Credit. Hence, in the case of UBI, the implementation of a universal and unconditional transfer ON' to all individuals causes a permanent shift along the 45° line. Following the redistribution, individuals with a gross income below OT' receive a positive benefit resulting from the disparity between the sum of UBI (represented by ON') and the taxes paid, measured by the vertical gap between the translated 45° line and the income paid by the firm. Conversely, taxpayers with an income exceeding OT' will incur a net tax payment.












































































Figure 1: Economic assessment of NIT and UBITo ensure that the total benefits provided by a NIT and UBI program are equivalent, the area ONT in the NIT scheme must equal the area ONT' in the UBI scheme, considering a normal distribution of individuals.As clearly evident in Figure 1, a NIT scheme benefits individuals with low pre-tax income, but beyond the threshold T, it disadvantages individuals who would receive a higher disposable income under the UBI option. By ensuring equal net costs for both schemes, in a NIT scheme, a minority of poor individuals is therefore supported by middle and high-income taxpayers whereas, in a UBI one, wealthier individuals contribute to redistributing income to middle and low-income individuals. A NIT program has therefore a more pronounced impact on reducing labour supply among low-income earners compared to UBI. From a distributive perspective, NIT exhibits greater effectiveness in combating poverty, but the presence of high marginal tax rates on low incomes might discourage the same individuals to work. Conversely, in the case of UBI, the lower benefits for impoverished individuals, coupled with lower marginal tax rates, incentivize greater participation of low-income individuals in the labour market at the cost of a lower effectiveness in tackling poverty.

In my previous blog, which you can find here, I investigated the economic rationale behind a Negative Income Tax (NIT) and a Universal Basic Income (UBI), arguing that the former exhibits greater effectiveness in combating poverty but might discourage individuals to work, while the latter incentives greater participation of low-income individuals in the labour market at the cost of a lower effectiveness in tackling poverty. However, this economic assessment is not the only lens through which these two policies can be analysed and usually fails to explain why right-wing parties tend to support a NIT while left-wing ones prefer an UBI. This political divide is mainly to be connected to the ethical – rather than the economic- differences of the two policies, with a NIT relying on a libertarian view of freedom and equality while the UBI arising from an egalitarian one.The first key aspect that distinguishes the ethical foundations of NIT and UBI relates to their perspectives on freedom. Examining freedom from a negative standpoint involves considering an individual free when they can carry out their actions without interference from others or groups (i.e., they are free from). Emphasising the concept of negative freedom is intrinsic to libertarian thinking, as it necessitates the establishment of minimal legal frameworks and a governing authority to safeguard individuals' self-determination. In contrast, from an egalitarian standpoint, an individual is deemed unfree if they lack the means necessary to pursue a goal and be autonomous, even if no other individual or institution obstructs their path. Positive freedoms can therefore be described as opportunities (i.e., they are free to), and their maximisation necessitates redistributive measures, which are ensured by a stronger and more active state.A second factor is individuals' approach to uncertainty. On one hand, the libertarian stance acknowledges that different individuals possess varying degrees of risk aversion when engaging in economic activities. This implies that individuals make choices regarding their employment status, investments, and consumption based on their unique risk preferences. In this view, the market system ensures equality of treatment among individuals. On the other hand, the egalitarian viewpoint perceives and justifies redistribution as a response to the widespread risk aversion exhibited by all individuals. This argument is rooted in the notion that, given individuals' lack of knowledge beyond moral considerations (referred to as the veil of ignorance), they would collectively support the existence of institutions dedicated to redistributing the products and benefits stemming from the arbitrary distribution of abilities and talents.Based on a libertarian view, a negative perception of freedom and a probabilistic approach to uncertainty would reject any form of equality beyond equal rights, thus opposing any form of compulsory fiscal imposition. However, assuming the necessity for the existence of such a policy, state intervention should be limited to preserving the essential tenets of libertarianism. Therefore, any public redistributive scheme should exclude any form of needs, the link with the market should be as weak as possible and the role of the state should be as less invasive as possible. In this context, a NIT scheme is often argued to be a redistributive policy that adheres to these constraints by implementing exemptions and deductions from taxable income and only taxing the portion that exceeds a certain threshold. On the other hand, a positive perception of freedom, which asserts that true freedom encompasses both the means and the rights to pursue one's desires, along with a risk-averse approach to uncertainty, leads to a policy that addresses people's needs with an unconditional requirement. This is exemplified by a UBI, which aims to meet individuals' purchasing power without imposing specific conditions.

Adam N. Michel


In addition to raising revenue, the tax code is used by politicians to subsidize myriad private activities, including politically popular energy sources, charitable giving, children, research, and housing. Congress and the Administration measure these programs through tax expenditure reports or lists of items that deviate from a "normal" income tax base.
A new report by Cato's Chris Edwards explains why the way government scorekeepers tabulate tax expenditures biases the tax code against investment and growth and toward progressive forms of redistribution. Congress can fix this bias by reforming the definition of tax expenditure in the Congressional Budget and Impoundment Control Act of 1974 (1974 Act).
Current tax expenditure lists are misleading because they lump together two separate phenomena. Some tax expenditures move the tax code toward a consumption tax base by decreasing harmful economic distortions of double taxation built into the normal income tax system. Many other tax expenditures are true special interest carve‐​outs and loopholes that grant privileges to some at the expense of others. Edwards estimates that about 48 percent of tax expenditure dollars are this type of special interest spending in the tax code.
As Congress considers additional reforms to the tax code, ways to lower tax rates, or increase revenues, it is critical to start with a definition of tax expenditures that does not confuse true loopholes with pro‐​growth improvements. Edwards explains:
To guide reforms, policymakers need an accurate tabulation of loopholes in the tax code. The current Treasury and JCT tax expenditure lists fall far short. They depend on the faulty Haig‐​Simons definition of income, which endorses the double taxation of saving and investment, and they depend on ad hoc rules reflecting a redistributionist bias. Claims that high earners gain the most from tax loopholes are off base. The claims stem from arbitrary choices made in producing the official tax expenditure lists.

Defining the tax base from which to measure expenditures is critical. The Haig‐​Simons income tax base includes earned income plus other changes in net worth. This system taxes saved income at a higher effective rate than income that is spent immediately. A consumption tax base fixes this problem by taxing all income that is consumed only once.
I encourage you to read the entire report, which includes the history of how the long‐​running academic debate over how to define the tax base still dictates current budget scoring. The report applies the discussion of the appropriate tax base to a series of proposed tax reforms, including the tax treatment of business investment, personal savings, health care, housing, and state and local finances.
I will highlight one point Edwards makes in passing: Treasury and the Joint Committee on Taxation (JCT) should change how they present tax expenditures. To facilitate this shift, Congress should amend the 1974 Act to specify that tax expenditures are to be measured from a comprehensive consumption tax base rather than from "gross income," which currently guides the inconsistently defined normal income tax base used by JCT.
Section 3(3) of the 1974 Act (2 U.S.C. 622(3)) states:
The term "tax expenditures" means those revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability; and the term "tax expenditures budget" means an enumeration of such tax expenditures.

By replacing "gross income" with "consumed income," Congress could ensure that future tax expenditure reports only include those provisions which are truly loopholes in the tax code.
Alternatively, Congress could add a sub‐​section requiring any agency that produces a tax expenditure report also produce a companion report measuring tax expenditures from a comparable consumption tax baseline. A second expenditure report could also be done at the request of the committees of jurisdiction or rule changes. As Edwards notes, the current federal tax code is a hybrid of the consumption and income tax systems. At a minimum, tax expenditures should be measured from the two tax bases and presented on an equal footing.
A better understanding of tax expenditures—the good and the bad—is critical in any discussion of future tax reform. Congress can ensure that future tax policy debates are better informed by clarifying how scorekeepers define deviations from the normal tax base.

Marc Joffe


In California, private sector innovation is giving way to public sector experimentation. From the state that pioneered special gasoline formulations, cap‐​and‐​trade, and natural gas bans, we now have income‐​based electricity billing. While this idea may seem like a reasonable response to the problem of moderate‐​income families being priced out of the state, a better approach would be to tackle the underlying causes of high energy prices.
A 2022 state law instructed the California Public Utility Commission (CPUC) to replace a flat monthly charge for the fixed costs of providing electricity with an income‐​graduated charge. Californians with very low incomes already receive a discount on their fixed charges under the existing California Alternate Rates for Energy (CARE) program, but the new law requires at least three new levels. The state's major utilities have proposed income‐​based rate structures to CPUC. For the most expensive utility, San Diego Gas & Electric, monthly fixed charges would vary from $24 for customers under the Federal Poverty Level (FPL) to $128 for users earning more than 650% of FPL, which, in 2023, is $119,000 for a couple with no kids. So, on an annual basis, upper middle income energy users will pay $1248 more than those on the most modest incomes.
Implementation of this scheme will raise both fairness and privacy concerns. California and the federal government already have progressive income tax systems and benefit programs that redistribute income from higher to lower earners. Using discriminatory energy prices to further income redistribution begs the question of whether other prices should be manipulated for the same purpose. For example, should food and clothing prices also vary based on income? Further, the income‐​graduated scheme will compel utilities to collect income and family size information from their customers, which some will see as invasive.
The income‐​graduated charge is an attempt to offset the consequences of previous state policies that have made electricity expensive in the Golden State. As the accompanying charts show, retail electricity prices are far higher in California than those in other large states and in neighboring far western states. Rates per kilowatt‐​hour (kWh) in California are double those in Texas, Arizona, Nevada, Idaho, and Oregon—states that are receiving many immigrants from the Golden State.











One contributor to the high cost of electricity in California is the Utility User Tax (UUT) levied by 156 cities and four counties across the state. This tax, which affects about half the state's population, averages around 4–5% but can reach 10% in some extreme cases such as the Bay Area city of Richmond, which has relatively large shares of minority and low‐​income residents. UUTs appear to be uncommon outside of California. Golden State local governments often seek new revenue sources to fund growing expenditures given Proposition 13's limit on property taxes.
A bigger contributor to California high electricity costs is the state's climate policies. For example, until recently, California required utilities to buy power from customers who have installed rooftop solar panels at the full retail price of electricity. As the Energy Institute at UC Berkeley Haas Business School explains, this level of compensation is excessive because it fails to take into account the many fixed costs that contribute to electricity prices. By overpaying solar customers, utilities redistribute costs to other, often poorer, consumers who may not be in a position to install home photovoltaic systems. The Energy Institute estimates that this policy has been adding three to five cents per kWh for San Diego Gas & Electric customers where the effect is most pronounced.
California utilities have also had to raise rates to fund wildfire mitigation efforts, especially after Pacific Gas & Electric was found liable for a series of deadly fires in Northern California. But the severity of California wildfires is often the result of the state's poor forest management policies.
Finally, California is doing a poor job of balancing the supply and demand for electric power. The state is not permitting any new nuclear or gas‐​fired power plants. Meanwhile, it encourages more electricity use by providing rebates on electric cars and phasing out new gasoline‐​powered vehicles ahead of a ban in 2035. New wind and solar plants are insufficient to meet the state's power demand. In 2021, the state imported 30% of its electricity. The need to buy power from out‐​of‐​state further increases energy costs.
It is not clear that California's heavy handed climate policies are essential to reducing the state's greenhouse gas emissions. The state is full of environmentally conscious consumers who are motivated to conserve, buy electric cars, and switch to solar power without the state's carrots and sticks.
So instead of pursuing policies that drive up power costs and then worry about the distributional effects, state policymakers would be well served by finding ways to lower energy costs for everyone.