Showing posts with label Inclusive Growth.   Show all posts

Costs of Recessions

From Stumbling and Mumbling:

“The Resolution Foundation’s James Smith has written a nice paper on the likelihood of recession and the fact that, with monetary less able to support the economy, we need to think about alternative ways of tackling recessions. I just want to amplify what he says in two ways.

First, there’s increasing evidence that recessions can do long-term damage, even if the economy appears to bounce back in the short-term. There are at least three mechanisms here:

– Education. Bryan Stuart shows that the 1980-82 recession in the US “generated sizable long-run reductions in education and income.” Parents who suffer a drop in income spend less on children’s books and educational trips, and this makes them less likely to go to college a few years later. Such effects are magnified if bad macro policy causes restraints upon public spending on schools and libraries.

– Productivity. Recessions increase uncertainty, which depresses investment in both capital and R&D, leading to lower productivity growth. The Bank of England’s Dario Bonciani and Joonseok Jason Oh say:

Shocks increasing macroeconomic uncertainty can lead to very persistent negative effects on economic activity that last well beyond the business cycle frequency.

– Scarring. A recent paper by Erin McGuire shows that people who grow up in hard times “invest less in risky assets throughout their lives, invest more in property, and are less likely to be self-employed.” This corroborates research (pdf) by Ulrike Malmendier and Stefan Nagel. Through this channel, recessions can reduce entrepreneurship and increase the cost of capital even decades later.

Against all this, it is theoretically possible that recessions have a beneficial “cleansing” (pdf) effect: in driving inefficient firms out of business, they make it easier for more efficient ones to expand, and this raises productivity growth.”

Continue reading here.

From Stumbling and Mumbling:

“The Resolution Foundation’s James Smith has written a nice paper on the likelihood of recession and the fact that, with monetary less able to support the economy, we need to think about alternative ways of tackling recessions. I just want to amplify what he says in two ways.

First, there’s increasing evidence that recessions can do long-term damage, even if the economy appears to bounce back in the short-term.

Read the full article…

Posted by at 11:16 AM

Labels: Inclusive Growth

Intergenerational mobility in Italy: Income distribution and regional analysis

An interesting new piece in VoxEu by Paolo Acciari, Alberto Polo and Gianluca Violante on inter-generational mobility in Italy:

“In a new paper (Acciari et al. 2019), we add to this recent wave of studies and introduce a new dataset that allows us to develop the first systematic investigation of intergenerational income mobility for the Italian economy. Our starting point is the administrative electronic database on individual tax returns maintained by the Italian Ministry of Economy and Finance. From this data source, we extracted a sample of two cohorts of Italians born between 1942-1963 and 1972-1983. We matched parents and children through their social security numbers. Our final dataset contains nearly 650,000 parent–child pairs with detailed income information for three years in each cohort.”

Table 1 National quintile transition matrix (%)

 

“We follow up on this last finding by exploring the geographical differences in inter-generational upward mobility across the 110 Italian provinces. We document a staggering amount of variation, with a steep south-north gradient, as depicted in Figure 2. Relative to the south of Italy, provinces in the north (especially the regions in the northeast), are both more egalitarian – i.e. they display higher relative mobility – and more upward-mobile – i.e. they display higher absolute mobility. In the north, children from parents with unequal background are more similar in their economic outcomes when adults, and children from poor parents fare better when adults. The level of upward mobility in northern Italy exceeds that of Scandinavian countries”

 

Figure 2: Estimated transition probability from bottom to top 20% of income distribution across provinces

An interesting new piece in VoxEu by Paolo Acciari, Alberto Polo and Gianluca Violante on inter-generational mobility in Italy:

“In a new paper (Acciari et al. 2019), we add to this recent wave of studies and introduce a new dataset that allows us to develop the first systematic investigation of intergenerational income mobility for the Italian economy. Our starting point is the administrative electronic database on individual tax returns maintained by the Italian Ministry of Economy and Finance.

Read the full article…

Posted by at 10:33 AM

Labels: Inclusive Growth

Explaining High Unemployment in ECCU Countries

A new IMF paper explains unemployment in ECCU countries:

“Unemployment rates in Grenada (GRD), St. Lucia (LCA), and St. Vincent and Grenadines (VCT) have been above 20 percent in recent years. Unemployment in Dominica (DMA) has also been high by international standards even before the natural disasters that recently hit the country. While it is likely that weak employment this decade was partly related to the impact of the global economic downturn, unemployment was already high prior to the global crisis in most of these countries, thus suggesting there are structural factors behind it. This paper evaluates factors that could explain high unemployment in ECCU countries, cyclical and structural.1 Our analysis systemically reviews demand, supply, and institutional factors that could foster unemployment. Within this framework, we analyze the potential impact of the global financial crisis, the downfall of the banana/sugar industries, the hurricanes that frequently hit these countries, the relatively rigid wage setting process, as well as factors that could increase reservation wages.”

A new IMF paper explains unemployment in ECCU countries:

“Unemployment rates in Grenada (GRD), St. Lucia (LCA), and St. Vincent and Grenadines (VCT) have been above 20 percent in recent years. Unemployment in Dominica (DMA) has also been high by international standards even before the natural disasters that recently hit the country. While it is likely that weak employment this decade was partly related to the impact of the global economic downturn,

Read the full article…

Posted by at 4:36 PM

Labels: Inclusive Growth

Wealth Inequality and Private Savings in Germany

From latest IMF report on Germany:

“Does the large current account surplus in Germany reflect export-driven income gains that are evenly shared among the population? The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalance has been accompanied by widening top income inequality, rising private savings and compressed consumption rates.”

From latest IMF report on Germany:

“Does the large current account surplus in Germany reflect export-driven income gains that are evenly shared among the population? The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context. As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalance has been accompanied by widening top income inequality,

Read the full article…

Posted by at 12:02 PM

Labels: Inclusive Growth

Capital Account Liberalization and Inequality

A new paper by Xiang Li and Dan Su highlights the possible relationship between capital account liberalization and inequality:

“This study adds empirical evidence to the literature linking external financial liberalization and income inequality. Its contributions are as follows. First, we provide evidence of the effect of opening the capital account on the income shares of different income groups. The dependent variable of previous studies is usually the nationwide Gini index. The use of income share data in this study cannot only show the effects on the overall distributional effect but also explain specifically which group benefits or loses the most. Second, we distinguish the direction and categories of capital account liberalization by using an updated measure from Fernández et al. (2016). The impacts of various dimensions of capital account liberalization can help narrow the discussion on specific opening policies . Third, we employ the difference-in-difference (DID) approach combined with propensity score matching (PSM) to estimate the impact of opening the capital account on income inequality in a 20-year window. In this way, we mitigate the endogeneity concern of conventional panel fixed effects models because the DID method tries to construct an experiment by selecting two groups of similar countries and then randomly liberalizing the capital account of the treated group while keeping that of the control group closed. In this way, we interpret the findings of this study one step closer to causality”

 

A new paper by Xiang Li and Dan Su highlights the possible relationship between capital account liberalization and inequality:

“This study adds empirical evidence to the literature linking external financial liberalization and income inequality. Its contributions are as follows. First, we provide evidence of the effect of opening the capital account on the income shares of different income groups. The dependent variable of previous studies is usually the nationwide Gini index.

Read the full article…

Posted by at 8:55 PM

Labels: Inclusive Growth

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