The Unassuming Economist

From a NBER paper by Pierre Bachas, Matthew H. Fisher-Post, Anders Jensen and Gabriel Zucman:

“How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base. (3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In high-income countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed.”

Source: Project Syndicate

In a recent column, John H. Cochrane of the Hoover Institution and Jon Hartley of Foundation for Research on Equal Opportunity write about the US’ long-ignored issue of supply-chain bottlenecks contributing to raging inflation today.

“The return of inflation is an economic cold shower”

They write how sclerotic growth in the country is not so much due to the “secular stagnation” of demand-side factors, but more due to clogging of the economy’s productive capacity. “The United States needs infrastructure. The problem is not money. The problem is that building anything in America has become almost impossible, owing to the thicket of regulations and lawsuits that will stop or drive up the costs of any project.” Barriers such as rocketing housing costs, deteriorating quality of public education, restrictive labor laws, trade protectionism, and other things all add to the problem. The authors also discuss some solutions to systematically eliminate such challenges.

From Austrian National Bank:

“The steep upward trend in residential property prices has continued – this was recently confirmed by the Oesterreichische Nationalbank (OeNB) in its Property Market Review Q1/22, which analyzes housing market trends, both in Austria and in Central, Eastern and Southeastern Europe (CESEE). In the fourth quarter of 2021, residential property prices in Austria recorded a year-on-year increase above 10% for the fifth time in a row. House prices in CESEE continued to grow steeply as well, with housing market dynamics raising concerns about financial stability risks in several CESEE countries.

Austria: clear uptrend in house prices continued for the fifth quarter in a row – both in and outside Vienna

In year-on-year terms, price growth remained above 10% in the fourth quarter of 2021 − both in Vienna and in the rest of Austria. In Vienna, prices increased by 11.3%, and prices in the other provinces rose by 13.9%. This means that, for Austria as a whole, house price growth reached a new peak at 12.6% (see table 1).

House prices in Austria increasingly misaligned with fundamentals

With a reading of 29.8% in the fourth quarter of 2021 − 7.6 percentage points higher than in the previous quarter − the OeNB’s fundamentals indicator for residential property prices in Austria showed the sharpest increase since the start of the series in 1989. The indicator for Vienna even came to 35.6%, showing an increase of 5.1 percentage points against the third quarter.

House prices in Central, Eastern and Southeastern Europe grew steeply with growth rates above EU average

In CESEE, house prices rose steeply in the second and third quarter of 2021, with growth remaining above the EU average. House price growth in CESEE was driven by several factors: On the demand side, the overall recovery can be seen as one of the key reasons explaining the house price dynamics observed in the second and third quarter of 2021. Moreover, partly generous government measures to support the purchase of residential property in several CESEE countries pushed up demand for housing. In terms of financing conditions, housing loan growth was supported by low interest rates. Rising construction costs and an overall shortage of input material have constrained the supply of new housing, eventually translating into additional pressure on house prices. Overall, housing market dynamics are raising concerns about financial stability risks in several CESEE countries.”

On cross-country:

• Reuters Q1 polls on major world housing markets – Reuters
• Around the World, Buying Is Costlier Than Renting. A new study compares the costs of renting versus buying a three-bedroom home in 39 countries across the globe. – New York Times
• To build or not to build, that is the uncertainty: Fuzzy synthetic evaluation of risks for sustainable housing in developing economies – Cities

On the US:    

• The Coming Rise in Residential Inflation – NBER
• The Fed’s Housing Dilemma: There Is No Way to Be Neutral – Barron’s
• How Bad Will It Be? Why the Spring Housing Market Will Be ‘Miserable’ for Homebuyers – Realtor
• US Housing Supply Gap Expands in 2021 – Realtor
• To Fix Its Housing Crisis, California Must Unleash the Duplex. State officials should look to New Jersey to see how zoning roles that allow “light touch density” can bring down housing costs — if local leaders allow it. – Bloomberg
• Audit: L.A. Spending as Much as $837,000 per Unit of Housing for Homeless. Despite apportioning over $1 billion for homeless housing, cost overruns and sluggish pacing threaten to jeopardize the city project. – Reason
• Pandemic Mortgage Relief Headed Off Delinquencies, but What Happens Now? – Dallas Fed
• Investors brace for flood of mortgage bonds when Fed trims balance sheet. US central bank is set to unwind massive pandemic-era stimulus measures – FT
• Short-Term Property Rental Platforms and the Housing Market: House Prices and Liquidity – Journal of Housing Research
• U.S. house prices to rise another 10% this year – Reuters

On China

• China urges banks, insurers to support affordable rental housing – Reuters
• A small measure of help for homebuyers. Relaxing mortgage requirements might help some to purchase flats that are larger than a car parking space – South China Morning Post
• Chinese Developers’ Dollar Bond Woes Deepen: Evergrande Update – Bloomberg
• Chinese Property Developers’ Broken Promises Erode Investor Confidence. China’s property-bond market remains deeply distressed as real-estate sales fall and investors retreat on a lack of trust – Wall Street Journal

On other countries:  

• [Germany] German house price rally to slow but cheap money to keep it running – Reuters
• [Ireland] Referendum on housing could be held next year. The Housing Commission has established a referendum subcommittee – The Irish Times
• [United Kingdom] Consumption Effects of Mortgage Payment Holidays: Evidence during the COVID-19 Pandemic – IMF
• [United Kingdom] Rightmove predicts property transactions return to ‘pre-pandemic levels’ this year. Bullish earnings report shows 2021 was busiest in FTSE 100 group’s 21-year history – FT
• [United Kingdom] Builders face an end to era of through-the-roof house prices. Their winning streak is fading before the cost of living crisis, supply and staff woes, and now conflict in Europe – The Guardian
• [United Kingdom] UK house prices surge in February despite rising mortgage rates. Nationwide house price index climbs 12.6%, pushing average cost of home over £260,000 – FT

One of the most visible stylized facts in contemporary inequality research is the association, across national economies, between measures of cross-section income inequality and intergenerational mobility or persistence. Recent publications of the National Bureau of Economic Research by Cholli and Durlauf (2022) and Durlauf et al (2022) seek to understand the relationship between cross-sectional income inequality and persistence of income across generations (the Great Gatsby Curve, named after Jay Gatsby, protagonist of F. Scott Fitzgerald’s infamous novel who broke through poverty to become a flamboyant millionaire). Five distinct classes of theories, including models on family investments, skills, social influences, political economy, and aspirations are developed, each providing a behavioral mechanism to explain the relationship. Theoretical models imply nonlinear relationships between parent and child status that are often ignored in practice and offer potentially different interpretations of the evidence of heterogeneity in mobility across locations, groups, and time. They conclude with a vision to combine theory with empirics to understand this phenomenon better.