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Why People Vote Against Redistributive Policies That Would Benefit Them?

While it has been widely claimed by economists and social scientists that inequality and political polarization are on the rise today, an understanding of people’s perception of ideas of inequality, fairness, and equity has largely evaded critical study. Of late, we have come to realize that perhaps such an understanding could form the missing piece of the puzzle required for effective policymaking. Especially in the USA, researchers have begun to seek answers to questions like why so many voters vote against redistributive policies that would benefit them, such as more progressive income taxes, taxes on capital income or estates, or more generous transfer programs, and why voters have tolerated policies that have contributed to a stark rise in inequality over the past few decades.

A recent column in the The MIT Press Reader (2021) sparks discussion on the same by taking cues from the book ‘Combating Inequality: Rethinking Government’s Role’ by noted economists Oliver Blanchard and Dani Rodrik. The author of the column discusses the role of “intangibles” that cannot be observed even in high-quality administrative datasets but very closely affect the development of policies to combat the problem of high quality. These intangibles- perceptions, views on fairness, and people’s ideas about their own economic standing- are discussed at greater length.

Click here to read the full article.

On similar lines, the OECD’s recent report titled, ‘Does Inequality Matter?‘ (2021), goes a step beyond country-level averages to ultimately find out that people’s perceptions of and levels of concerns about inequality have become very widely dispersed.

“Such dispersion can only be partially explained by standard socio-economic divides across income, education, employment status, gender, age, and household size. In some instances, the dispersion of perceptions and concern becomes polarization between groups with starkly different views. Both dispersion and polarization of perceived disparities and concern have grown steeply over time. Higher levels of observed inequality are associated not only with greater perceived disparities and concerns, but with a more divided public opinion.”

The report also brings out some very intricate insights such as the fact that quite contrary to intuition, most of this increased dispersion in the perception of inequalities and concern for income disparities comes from people who are not less similar but very similar to each in socio-economic characteristics.

Click here to read Section 4 (Has the public opinion become more divided?) of the 2021 OECD Report: Does Inequality Matter?

While it has been widely claimed by economists and social scientists that inequality and political polarization are on the rise today, an understanding of people’s perception of ideas of inequality, fairness, and equity has largely evaded critical study. Of late, we have come to realize that perhaps such an understanding could form the missing piece of the puzzle required for effective policymaking. Especially in the USA, researchers have begun to seek answers to questions like why so many voters vote against redistributive policies that would benefit them,

Read the full article…

Posted by at 1:20 PM

Labels: Inclusive Growth

Distributional Impacts of COVID-19 in the MENA Region

“The COVID-19 is the fourth crisis to have hit the Middle East and North Africa (MENA) region in the decade following the Arab uprisings, the 2014-16 oil price declines, and the 2019 resurgence of protests.  It differs from the other crises because of its broad impacts and its distributional consequences. But even before COVID-19 arrived in March 2020, MENA had been facing a number of serious economic challenges — high rates of unemployment, high levels of informality, low annual economic growth, low female labor force participation, an unconducive business environment, a lack of quality jobs, food insecurity, and fragility and conflict (with large numbers of refugees).”

A recent report by the World Bank Group titled, Distributional Impacts of COVID-19 in the Middle East and North Africa Region (2021), attempts to find answers to pertinent questions regarding this, such as what are the welfare of individuals and households in MENA, and what are the key issues that policymakers should focus on to enable a quick and sustained economic convalescence? 

“The report’s findings suggest a substantial rise in poverty, greater inequality, the emergence of a group of “new poor” (those who were not poor in the first quarter of 2020 but have become poor since), and changes in the labor market (notably how hard people work and how many people work). Top policy options center on stepping up vaccination programs, resuscitating economic activity, rethinking the approach to the informal sector, boosting resilience to future shocks, and improving data quality and transparency.” 

Click here to read the full report.

“The COVID-19 is the fourth crisis to have hit the Middle East and North Africa (MENA) region in the decade following the Arab uprisings, the 2014-16 oil price declines, and the 2019 resurgence of protests.  It differs from the other crises because of its broad impacts and its distributional consequences. But even before COVID-19 arrived in March 2020, MENA had been facing a number of serious economic challenges — high rates of unemployment, high levels of informality,

Read the full article…

Posted by at 6:56 AM

Labels: Inclusive Growth

Dani Rodrik’s Primer on Trade and Inequality

Excerpts from Professor Dani Rodrik’s working paper, A Primer on Trade and Inequality (2021), for the National Bureau of Economic Research:

“In the public imagination globalization’s adverse effects have loomed large, contributing significantly to the backlash against the political mainstream and the rise of far-right populism. The literature on trade and inequality is in fact exceptionally rich, with important theoretical insights as well as extensive empirical findings that sheds light on this recent experience. Some of the key results of this literature, discussed here, are as follows: Redistribution is the flip side of the gains from trade, and it becomes larger relative to net gains from trade in the advanced stages of globalization. Compensation is difficult for both economic and political reasons. International trade often differs from other market exchanges, raising fairness concerns in ways that domestic markets do not. The economic benefits of deep integration are generally ambiguous. Dynamic or growth gains from trade are uncertain.”

Moreover, on the role of financial globalization and capital mobility the paper takes the following stand. “Researchers at the IMF have found that greater capital mobility produces strong inequality effects (Jaumotte et al., 2013; Furceri and Loungani, 2015; Furceri et al., 2017). In particular, they find that capital-account liberalization leads to statistically significant and long-lasting declines in the labor share of income and corresponding increases in the Gini coefficient of income inequality and in the shares of top 1, 5, and 10 percent of income.”

Click here to read the full paper.

Excerpts from Professor Dani Rodrik’s working paper, A Primer on Trade and Inequality (2021), for the National Bureau of Economic Research:

“In the public imagination globalization’s adverse effects have loomed large, contributing significantly to the backlash against the political mainstream and the rise of far-right populism. The literature on trade and inequality is in fact exceptionally rich, with important theoretical insights as well as extensive empirical findings that sheds light on this recent experience.

Read the full article…

Posted by at 9:19 AM

Labels: Inclusive Growth

Does Inequality Matter?

Through cross-country evidence, the Organisation for Economic Co-operation and Development (OECD) has shown that economic inequality has risen in most OECD countries in the last thirty years or so while social mobility has stagnated or worsened. In its most recent report, the OECD turns its gaze to the question of how people perceive inequality and social mobility.

When it comes to questions on the perception of inequality, it has been shown in the report that there is overwhelming concern regarding income distribution and the lack of equal opportunities in the average world citizen. However, far from being an umbrella statement, there are instead a multitude of layers shaping people’s understanding of the phenomenon and factors affecting it.

Figure 1: Concern over income disparities has increased in the recent decades
Source: OECD. (2021). Does Inequality Matter?

In this report, emphasis is laid on providing an explanation to several such factors such as whether people care about inequality, how connected is their perception of inequality to the actually prevailing reality, how supportive is the general public for increased governmental action to bridge income gaps and how far are the people ready to go to hold governments accountable for failing to do so. It then moves on to providing interesting policy insights about the reform process and some hitherto ignored policies that have worked well.

Click here to read the full report.

Through cross-country evidence, the Organisation for Economic Co-operation and Development (OECD) has shown that economic inequality has risen in most OECD countries in the last thirty years or so while social mobility has stagnated or worsened. In its most recent report, the OECD turns its gaze to the question of how people perceive inequality and social mobility.

When it comes to questions on the perception of inequality, it has been shown in the report that there is overwhelming concern regarding income distribution and the lack of equal opportunities in the average world citizen.

Read the full article…

Posted by at 8:17 AM

Labels: Inclusive Growth

Credit, crises, and inequality

In a recent working paper of the Bank of England (2021), authors Jonathan Bridges, Georgina Green, and Mark Joy evaluate a panel dataset of 26 developed nations over 5 decades preceding the Covid-19 pandemic to show that inequality rises following recessions, and rapid credit growth in the time until downturn exacerbates that effect. This growth, whether financial or normal in nature, increases unemployment and inequality effects. They observe that “one standard deviation credit boom leads to a 40% amplification of the distributional fallout in the bust that follows”.

Moreover, “low bank capital ahead of a downturn amplifies the inequality increase that follows. These insights add a new dimension to policy cost-benefit analysis, at the distributional level.” The paper’s results indicate that a 55% amplification in the cyclical response of income inequality to a recession if a country enters the recession with bank capital ratios one standard deviation lower than average. The authors note that using the tools established in new macroprudential norms empower economies to safeguard their financial stability using both borrower and lender resilience, but can also lead to distributional costs in the event of an untamed crisis.

“Taken together, these results suggest an important link between credit, crises, and inequality. They demonstrate that tail events for the macroeconomy also represent distributional shocks.” Vulnerabilities like the rapid accumulation of debt, weakening of bank capital, and an increased risk of recession transforming into a full-fledged financial crisis can all contribute to distributional effects and rising inequalities when a crisis actually strikes. While the use of macroprudential policies to address these vulnerabilities has both, associated costs and benefits, entirely avoiding the usage of these policies entirely can lead to severe macroeconomic and distributional ill effects.

Click here to read the full paper.

In a recent working paper of the Bank of England (2021), authors Jonathan Bridges, Georgina Green, and Mark Joy evaluate a panel dataset of 26 developed nations over 5 decades preceding the Covid-19 pandemic to show that inequality rises following recessions, and rapid credit growth in the time until downturn exacerbates that effect. This growth, whether financial or normal in nature, increases unemployment and inequality effects. They observe that “one standard deviation credit boom leads to a 40% amplification of the distributional fallout in the bust that follows”.

Read the full article…

Posted by at 9:01 AM

Labels: Inclusive Growth, Macro Demystified

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