The Unassuming Economist

From a new working paper by Priya Ranjan and Giray Gozgor:

“We construct a theoretical model to capture the compensation and efficiency effects of globalization in a set up where the redistributive tax rate is chosen by the median voter. The model predicts that the two alternative modes of globalization- trade liberalization and financial openness- could potentially have different effects on taxation. We then provide some empirical evidence on the relationship between taxation and the alternative modes of globalization using a large cross-country panel dataset. We make a distinction between de jure and de facto measures of globalization and find a robust negative relationship between de jure measures financial openness and tax rates. There is no robust relationship between de facto measures of finanical openness and taxation. As well, the relationship between trade liberalization (both de jure and de facto measures) and tax rates is not robust and depends on the measures of taxation as well as the time period of analysis.”

A new IMF working paper by Ezequiel Cabezon and Christian Henn says:

“Based on a permanent income analysis, Gagnon (2018) has prominently suggested that Norway has saved too much, thereby free-riding on the rest of the world for demand. Our public sector balance sheet analysis comes to the opposite conclusion, chiefly because it also accounts for future aging costs. Unsurprisingly, we find that Norway’s current assets exceed its liabilities by some 340 percent of mainland GDP. But its nonoil fiscal deficits have grown very large (to almost 8 percent of mainland GDP) and aging pressures are only commencing. Therefore, Norway’s intertemporal financial net worth (IFNW) is negative, at about -240 percent of mainland GDP. As IFNW represents an intertemporal budget constraint, this implies that Norway’s savings are likely insufficient to address aging costs without additional fiscal action.”

 

A new IMF country report says that “Saudi Arabia’s labor market is characterized by a persistently high unemployment rate, low private employment ratio, and a low labor participation rate for nationals. The authorities are undertaking a wide range of labor market interventions to address these issues. The analysis in this paper shows that these interventions are helping to reduce distortions in the labor market, including by boosting female labor force participation and reducing the wage gap between expatriates and nationals in the private sector, but the impact on the rest of the economy is not always positive as firms adjust to the higher cost of labor. Reforms should therefore be gradual to minimize their impact on growth. A comprehensive set of policies is also needed to foster job creation for nationals. Measures should include policies toward levelling the playing field between national and expatriate workers so that employers have less of a preference for employing expatriates, setting clear expectations about the limited prospects for public sector employment, boosting female labor force participation, and strengthening education and training to support increased productivity of nationals.”

A new IMF working paper by Gabriele Ciminelli, Romain Duval, and Davide Furceri investigates “the impact of job protection deregulation in a sample of 26 advanced economies over the period 1970-2015, using a newly constructed dataset of major reforms to employment protection legislation for regular contracts” and finds “a statistically significant, economically large and robust negative effect of deregulation on the labor share. In particular, illustrative back-of-the-envelope calculations suggest that job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies. Together with existing evidence regarding the macroeconomic gains from job protection and other labor market reforms, [these] results also point to the need for policymakers to address efficiency-equity trade-offs when designing such reforms.”

A new VOX post “uses new ‘distributional national accounts’ data to show that the Middle East is in fact the most unequal region in the world, with both enormous inequality between countries and large inequality within countries. The results emphasise the need to develop mechanisms of regional redistribution and to increase transparency on income and wealth data.”

“According to our benchmark estimates, the share of total income accruing to the top 10% of income earners is about 64% in the Middle East, which compares with 37% in Western Europe, 47% in the US, 55% in Brazil, and 62% in South Africa – the two latter countries being often characterised as the most unequal in the world (see Figure 1).”

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