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31. Estimates of the Natural Rate of Interest and the Stance of Monetary Policies: A Critical Assessment

Author:
Enrico Sergio Levrero
Publication Date:
01-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
After briefly mentioning the determinants of the natural rate of interest in the New Keynesian models, the paper discusses the different notions of it that we find in these models and the problems encountered when the natural rate is estimated. It states that these problems are not only related to the difficulties in distinguishing the kind and persistency of economic shocks, but pertain to theory, namely to model specification and the alleged independence of the average or normal interest rate from monetary policy. Following Keynes’s suggestion regarding the monetary nature of interest rates, some final remarks will thus be advanced on their effects on prices and income distribution as well as on the objectives and stance of monetary policies.
Topic:
Economics, Monetary Policy, Income Inequality, Macroeconomics, and Keynes
Political Geography:
United States and Global Focus

32. Finance in Economic Growth: Eating the Family Cow

Author:
Peter Temin
Publication Date:
01-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
It is hard to fit finance into the measurement of national product and of economic growth, and similar problems bedevil efforts to include other intangible investments as well. I describe how our current accounts deal with these problems, and I argue that existing NIPA data fail to describe the future path of growth in our new economy because they lack output data on financial, human and social capital investments. They fail to show that the United States is consuming its capital stock now and will suffer later, rather like killing the family cow to have a steak dinner.
Topic:
Economics, Finance, Economic Growth, and Macroeconomics
Political Geography:
United States

33. Cross-Border E-Commerce: WTO discussions and multi-stakeholder roles – stocktaking and practical ways forward

Author:
Michael Kende1 and Nivedita Sen
Publication Date:
01-2019
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
E-commerce has long been recognized as a driver of growth of the digital economy, with the potential to promote economic development. The benefits come from lower transaction costs online, increased efficiency, and access to new markets. The smallest of vendors can join online marketplaces to increase their sales, while larger companies can use the Internet to join global value chains (GVCs), and the largest e-commerce providers are now among the most valuable companies in the world.
Topic:
Development, Economics, Science and Technology, World Trade Organization, Digital Economy, Economic Growth, and Free Trade
Political Geography:
United States, Europe, Switzerland, and Global Focus

34. Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

Author:
Ricardo Perez Truglia, Matias Giaccobasso, Guillermo Cruces, Rodrigo Ceni, and Marcelo Bergolo
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:
The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.
Topic:
Economics, Global Political Economy, Tax Systems, Economic Policy, and Macroeconomics
Political Geography:
United States, Argentina, and Global Focus

35. Oh Mother: The Neglected Impact of School Disruptions

Author:
David Jaume and Alexander Willén
Publication Date:
03-2019
Content Type:
Working Paper
Institution:
Center for Distributive, Labor and Social Studies (CEDLAS)
Abstract:
Temporary school closures (TSC) represent a major challenge to policymakers across the globe due to their potential impact on instructional time and student achievement. A neglected but equally important question relates to how such closures affect the labor market behavior of parents. This paper provides novel evidence on the effect of temporary school closures on parental labor market behavior, exploiting the prevalence of primary school teacher strikes across time and provinces in Argentina. We find clear evidence that temporary school closures negatively impact the labor market participation of mothers, in particular lower-skilled mothers less attached to the labor force and mothers in dual-income households who face a lower opportunity cost of dropping out of the labor force. This effect translates into a statistically significant and economically meaningful reduction in labor earnings: the average mother whose child is exposed to ten days of TSCs suffers a decline in monthly labor earnings equivalent to 2.92% of the mean. While we do not find any effects among fathers in general, fathers with lower predicted earnings than their spouses also experience negative labor market effects. This suggests that the parental response to TSCs depend, at least in part, on the relative income of each parent. A back-of-the-envelope calculation suggest that the aggregate impact of TSCs on annual parental earnings is more than $113 million, and that the average mother would be willing to forego 1.6 months of labor earnings in order to ensure that there are no TSCs while her child is in primary school.
Topic:
Economics, Education, Markets, Political Economy, and Labor Issues
Political Geography:
United States

36. No Data in the Void: Values and Distributional Conflicts in Empirical Policy Research and Artificial Intelligence

Author:
Maximilian Kasy
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
Decision making based on data - whether by policymakers drawing on empirical research, or by algorithms using machine learning - is becoming ever more widespread. Any time such decisions are made, we need to carefully think about the goals we want to achieve, and the policies we might possibly use to achieve them. Data cannot absolve us of this responsibility. They do not allow us to avoid value judgements, and do not relieve us from taking sides in distributional conflicts. This essay introduces a general framework to clarify this point, and then discusses a series of settings in which the choice of objectives (goals) has far-reaching and maybe unexpected implications.
Topic:
Economics, Science and Technology, Labor Policies, Economic Policy, and Artificial Intelligence
Political Geography:
United States

37. Shooting Oneself in the Foot? Trade War and Global Value Chains

Author:
Cecilia Bellora and Lionel Fontagné
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Despite the “Phase One Deal” agreed on mid-December 2019, bilateral tariffs between US and China remain at unprecedented high levels, which will have long-lasting effects. US tariffs remain very high on parts, components and other intermediate products; similarly, only the last wave of Chinese retaliatory tariffs has been half cut. We investigate in this paper how such tensions between highly interdependent economies will impact trade, income and jobs. We rely on a set-up featuring General Equilibrium, imperfect competition and importantly differentiating demand of goods according to their use, for final or intermediate consumption. This authorizes tracing the impact of protection along the value chains, on prices, value added and factor income. Additional tariffs from official lists are taken into account at the tariff line level, before being aggregated within sectors. Beyond the direct toll of sanctions, US exports to the world post a sizeable decrease as a result of reduced competitiveness led by vertical linkages along the value chains. Because of the tariffs in place as of February 2020, three quarters of the sectors decrease their value added in the US. Consistent with political economy determinants, these twists of value added are transmitted to production factors, leading to sizeable creation and destruction of jobs, and reallocation of capital to the benefit of protected sectors, mostly at the expense of their clients. Ultimately, this paper sheds light on the economic consequences of policies disrupting global value chains.
Topic:
Economics, International Political Economy, Bilateral Relations, Tariffs, Trade Wars, and Trade
Political Geography:
United States and China

38. The Exorbitant Privilege of High Tax Countries

Author:
Vincent Vicard
Publication Date:
03-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
The well documented US excess returns on its net foreign assets is no exception at the world level. Excess returns on foreign assets owe largely to yield differential within the FDI asset class and are correlated to the corporate tax rate for a large sample of countries, consistently with tax motivated profit shifting by multinational corporations. Using French firm level data on dividends and reinvested earnings from foreign affiliates, I provide evidence and quantify the impact of corporate tax avoidance on international asset returns. Profit shifting inflates the investment income balance and accounts for the average 2 percentage points return differential between French FDI assets and liabilities. Missing profts in France, estimated at €36 billions or 1.6% of GDP in 2015, are mostly shifted to EU countries.
Topic:
Economics, International Political Economy, European Union, GDP, Tax Systems, Profit, and Corporate Tax
Political Geography:
United States and France

39. A Fistful of Dollars? Foreign Sales Platforms and Profit Shifting in Tax Havens

Author:
Sébastien Laffitte and Farid Toubal
Publication Date:
01-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Using public macro-level data on activities of multinationals, we document that U.S. firms geographically disconnect sales and production to avoid paying corporate taxes. We revisit both theoretically and empirically the location determinants of foreign platforms and show that market access motives are far less relevant when considering tax havens. We characterize these countries and shed light on the attractiveness of different tax havens for specific sectors of activity. Our quantification shows that profit shifting by foreign sales platforms in tax havens amounts to about $80bn in 2013. Our findings contribute to the recent policy debate on the reform of international taxation.
Topic:
Economics, International Political Economy, Global Political Economy, Multinational Corporations, Tax Systems, and Corporate Tax
Political Geography:
United States

40. The Secular Stagnation of Productivity Growth

Author:
Servaas Storm
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The concern that an economy could experience persistent stagnation, caused by a structural weakness of aggregate demand, goes back to Alvin Hansen’s (1939) thesis of ‘secular stagnation’. Hansen’s thesis has been revived in recent times, when it became clear that productivity and potential growth in the OECD countries have been declining for decades. However, in line with deep-rooted theoretical beliefs, that inadequate demand can only affect growth in the short run, secular stagnation (of potential growth) is treated as an exclusively supply-side problem, the root of which is a worrying steady decline in productivity growth. This paper argues that it is a mistake to dismiss secular demand stagnation as main cause of declining potential growth in the OECD. We argue that the theoretical case for demand-caused secular stagnation is strong and empirical evidence that it has affected the U.S. economy after the mid-1970s is entirely convincing. Demand is leading supply, also in the long run. Hansen had it right, after all.
Topic:
Economics, Political Economy, Economic Growth, Macroeconomics, Demand, and Stagnation
Political Geography:
United States