The Unassuming Economist

From a new IMF working paper: “In this study, we document the decline in income inequality and a convergence in consumption patterns in Brazilian states in a new database constructed from micro data from the national households’ survey. We adjust the state-Gini coefficients for spatial price differences using information on households’ rental prices available in the survey. In a panel regression framework, we find that labor income growth, formalization, and schooling contributed to the decline in inequality during 2004−14, but redistributive policies, such as Bolsa Família, have also played a positive role. Going forward, it will be important to phase out untargeted subsidies, such as public spending on tertiary education, and contain growth of public sector wages, to improve budgetary efficiency and protect gains in equality.”

From a new IMF working paper by Davide Furceri and Grace Li:

“This paper provides new empirical evidence of the macroeconomic effects of public investment in developing economies. Using public investment forecast errors to identify unanticipated changes in public investment, the paper finds that increased public investment raises output in the short and medium term, with an average short-term fiscal multiplier of about 0.2. We find some evidence that the effects are larger: (i) during periods of slack; (ii) in economies operating with fixed exchange rate regimes; (iii) in more closed economies; (iv) in countries with lower public debt; and (v) in countries with higher investment efficiency. Finally, we show that increases in public investment tend to lower income inequality.”

My paper with Davide Furceri on the effects of capital account liberalization on inequality is now forthcoming in the Journal of Development Economics and is available (link) at the JDE website. We find that capital account liberalization is associated with a persistent increase in the share of income going to the top. We investigate three channels through which these impacts could occur. First, the impact of liberalization on inequality is stronger where credit markets lack depth and financial inclusion is low; positive impacts of liberalization on poverty rates also vanish when financial inclusion is low. Second, the impact on inequality is also stronger when liberalization is followed by a financial crisis. Third, liberalization seems to alter the relative bargaining power of firms and workers: the labor share of income falls in the aftermath of capital account liberalization. For those without access to the JDE, an earlier working paper (link) version is available.

Figure 10. The effect of capital account liberalization on the top income shares

From the opening remarks of Vitor Gaspar, Director of the Fiscal Affairs Department:

“This issue of the Fiscal Monitor looks at inequality. First, it documents trends in inequality and examines the role of fiscal policy. Then, it examines the following three policies that are currently widely debated: first, progressive taxation; second, universal basic income (UBI); and third, public spending on education and health.”

Continue reading here.

A new IMF report finds that “Over the past three years, the Spanish labor market has seen a strong turnaround, recovering more than a third of jobs lost during the crisis. This rebound has taken place on the back of significant wage moderation and regained external competitiveness, supported by labor market reforms. Employment has been growing across sectors, with services accounting for 80 percent of net employment creation, marking a sectoral shift away from construction. Except for some fast-growing smaller sectors such as information and communications, the new service-sector jobs are generally in the lower-productivity segment, including in tourism-related activities, and just over half are of temporary nature. Job growth has also varied across regions, reflecting different employment situations and sectoral specializations. Generally, the newly created jobs make sub-optimal use of existing skill patterns in Spain, with over-skilling becoming more prevalent and persistent skills gaps among the lower-educated preventing many from finding employment.”