The Unassuming Economist

From a paper by Joe Piacentini, Harley Frazis, Peter B. Meyer, Michael Schultz, and Leo Sveikauskas:

“This paper surveys economic literature largely from 2020 and 2021 on how the COVID-19 pandemic and responses to it affect U.S. income inequality. Established trends of growing inequality may continue roughly as before, involving new technologies, international trade, and the growth of “superstar” firms. Employment, earnings, and schooling were affected differently across demographic groups and occupations. The pandemic disrupted lower-paid, service sector employment most, disadvantaging women and lower income groups at least temporarily, and this may have scarring effects. Government policies implemented in response to the pandemic offset much of the effect on income. Higher-paid workers tend to gain more from continuing opportunities to telework. Less-advantaged students suffered greater educational setbacks from school closures. School and day care closures disrupted the work of many parents, particularly mothers. We conclude that the pandemic is likely to widen income inequality over the long run, because the lasting changes in work patterns, consumer demand, and production will benefit higher income groups and erode opportunities for some less advantaged groups. Telework has increased permanently. High-contact jobs and services may continue to face reduced demand and increased automation. School disruptions have been worse for lower-income students and are likely to have lingering negative effects, which may widen future inequality within more recent birth cohorts. The history of the 1918 flu shows that the effect of a pandemic on inequality in income, education, health, and wealth depends on the nature of the pandemic and on behavioral and policy responses.”

From a paper by Zheng Wang, Yufei Chen, and Wenjing Sun:

“Since the 1990s, global income and wealth inequality has increased significantly, especially in developing countries, where the imbalance in wealth distribution has become increasingly prominent. This study seeks to thoroughly investigate the effects of expansionary monetary policy on income and wealth inequality, using China as a case study and employing extensive household survey microdata for empirical analysis. The findings indicate that expansionary monetary policy has significantly enhanced overall income and wealth levels. However, when considering the extent of wealth growth, it appears that affluent households have benefited more than their low- and middle-income counterparts, thereby widening the wealth gap. In addition, the real estate market boom played an amplifying role in this process, further deepening the impact of monetary policy on wealth inequality. The findings of this paper provide an important empirical basis for understanding the complex relationship between monetary policy and socio-economic inequality, and provide practical references for policymakers to consider the fairness of income and wealth distribution when formulating relevant monetary policies.”

From paper by Mallika Saha, Kumar Debasis Dutta & Touhidur Rahman:

“The increasing influence of financialization (FIN) has been widely debated for its potential to exacerbate income inequality (INQ), particularly in nations with weaker democratic institutions. This research investigates how democracy (DEM) influences the relationship between financialization (FIN) and income inequality (INQ) by examining a panel of 118 countries spanning the period from 2004 to 2022. Utilizing advanced econometric methods, specifically System-GMM estimation, the findings reveal that the FIN–INQ relationship is nonlinear, exhibiting a U-shaped pattern: Financialization initially alleviates income inequality, but after reaching a certain threshold, it begins to intensify income disparities. Additionally, we find that DEM significantly mitigates the adverse effects of FIN on INQ. Strong democratic institutions, through mechanisms such as transparency, accountability, and the protection of labor rights, help prevent wealth concentration and promote a more equitable income distribution. These findings offer critical insights for policymakers, highlighting the need to foster democratic governance to ensure that financialization contributes to equitable economic outcomes and supports sustainable development.”

From a paper by François Langot, Jocelyn Maillard, Selma Malmberg, Fabien Tripier, and Jean-Olivier Hairault:

“This paper evaluates different fiscal consolidation policies using a Heterogeneous-Agent New-
Keynesian (HANK) model. Three key results emerge. First, the effectiveness of fiscal consolidation
improves markedly when implemented through a fiscal rule rather than resulting from
a series of discretionary decisions: for the same level of expenditure cuts, the reduction in the
debt-to-GDP ratio is larger, and the uncertainty surrounding debt forecasts is lower. Second, it
is more efficient to use household transfers as an instrument than public consumption. Third, a
significant reduction in the debt-to-GDP ratio can be achieved without penalizing GDP growth
or exacerbating inequalities if the government drastically reduces social insurance-based transfers
while increasing social assistance transfers. These results are based on an original stochastic
debt-sustainability analysis using a HANK model, which provides: (i) the projected path of the
future debt-to-GDP ratio for a given policy, conditional on a particular business cycle episode,
and (ii) the full distribution of future debt-to-GDP ratios, thereby highlighting the policy’s
benefits in reducing the risk of a public debt increase under adverse economic conditions. Evaluations
are based on the French economy, which has committed to lowering it in order to comply
with the European Treaty.”

From a paper by Surjit S. Bhalla, Karan Bhasin, and Prakash Loungani:

“There seems to be a consensus that the inflation targeting framework adopted in India in 2016 has been successful in taming inflation. A comprehensive analysis of inflation targeting should be based on the impact on inflation dynamics, expectations and implications for growth. We illustrate the strong downward time-trend in India’s inflation dynamics coinciding with the inflation targeting regime. Trend inflation levels in India and other emerging market economies also suggest a downward trajectory regardless of the adoption of inflation targeting. Thefore, it is difficult to conclusively establish that adoption of inflation targeting in India led to a moderation in inflation or anchoring of inflation expectations. On expectations, there is some evidence of anchored household expectations, however, this anchoring predates the formal adoption of inflation targeting. Long-term expectations in India have remained firmly anchored since early 2000s. In terms of growth, the high real interest rates policy followed during the initial years of inflation targeting to establish credibility of IT regime adversely affected India’s growth dynamics.”