Risk and Information in the Municipal Bond Market

NBER Reporter 2014 Number 3: Research Summary.

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Declining Savings Among the Bottom 90%

Screenshot 2014-10-18 21.25.21

From Saez and Zucman (2014)

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Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data

From Emmanuel Saez and Gabriel Zucman:

This paper combines income tax returns with Flow of Funds data to estimate the distribution of household wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations’ tax records. Wealth concentration has followed a U-shaped evolution over the last 100 years: It was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The rise of wealth inequality is almost entirely due to the rise of the top 0.1% wealth share, from 7% in 1979 to 22% in 2012—a level almost as high as in 1929. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.

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Capital Depreciation and Labor Shares Around the World: Measurement and Implications

From Loukas Karabarbounis and Brent Neiman:

The labor share is typically measured as compensation to labor relative to gross value added (“gross labor share”), in part because gross value added is more directly measured than net value added. Labor compensation relative to net value added (“net labor share”) may be more important in some settings, however, because depreciation is not consumed. We document that both gross and net labor shares have declined around the world over the past four decades. Some countries, including the United States, experienced increases in the value of depreciation and therefore their net labor share declined by less than their gross labor share. The average economy, however, experienced a similarly sized decline in both measures. Using a simple model, we analyze the relationship between technology, depreciation, factor shares, and inequal- ity. Consistent with our empirical findings, we demonstrate that gross and net labor shares move together in response to changes in the price of investment goods but not necessarily in response to other shocks. We illustrate that both labor share measures can be jointly informative about the structure of production, realization of shocks, and transitional dynamics of consumption inequality.

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Investment Hangover and the Great Recession

From Alp Simsek, Andrei Sheifer, and Matthew Rognile:

We present a model of investment hangover motivated by the Great Recession. In our model, overbuilding of residential capital requires a reallocation of productive resources to nonresidential sectors, which is facilitated by a reduction in the real interest rate. If the fall in the interest rate is limited by the zero lower bound and nominal rigidities, then the economy enters a liquidity trap with limited reallocation and low output. The drop in output reduces nonresidential investment through a mechanism similar to the acceleration principle of investment. The burst in nonresidential investment is followed by an even greater boom due to low interest rates during the liquidity trap. The boom in nonresidential investment induces a partial and asymmetric recovery in which the residential sector is left behind, consistent with the broad trends of the Great Recession.


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New Evidence on the Impact of Financial Crises in Advanced Countries

New (preliminary) work from Christy and David Romer:

This paper revisits the aftermath of financial crises in advanced countries in the decades before the Great Recession. We construct a new series on financial distress in 24 OECD countries for the period 1967–2007. The series is based on narrative assessments of the health of countries’ financial systems that were made in real time; and it classifies financial distress on a relatively fine scale, rather than treating it as a 0-1 variable. We find little support for the conventional wisdom that the output declines following financial crises are uniformly large and long-lasting. Rather, the declines are highly variable, on average only moderate, and often temporary. One important driver of the variation in outcomes across crises appears to be the severity and persistence of the financial distress itself: when distress is particularly extreme or continues for an extended period, the aftermath of a crisis is worse.

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Why public investment really is a free lunch – FT.com

Why public investment really is a free lunch – FT.com.

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