Christy Romer: After A Financial Crisis, Economic Disaster Is Not Inevitable

Bonnie Kavoussi’s Blog: Christina Romer: After A Financial Crisis, Economic Disaster Is Not Inevitable.

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Seven Tax Issues Facing Small Business

Originally posted on Donald Marron:

Today I had the chance to testify before the House Small Business Committee on the many tax issues facing small business. Here are my opening remarks. You can find my full testimony here.

America’s tax system is needlessly complex, economically harmful, and often unfair. Despite recent revenue gains, it likely will not raise enough money to pay the government’s future bills. The time is thus ripe for wholesale tax reform. Such reform could have far-reaching effects, including on small business. To help you evaluate those effects, I’d like to make seven points about the tax issues facing small business.

1. Tax compliance places a large burden on small businesses, both in the aggregate and relative to large businesses.

The Internal Revenue Service estimates that businesses with less than $1 million in revenue bear almost two-thirds of business compliance costs. Those costs are much larger, relative to revenues or assets…

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Structural Transformation, the Mismeasurement of Productivity Growth, and the Cost Disease of Services

From Alywn Young:

If workers self-select into industries based upon their relative productivity in different tasks, and comparative advantage is aligned with absolute advantage, then the average efficacy of a sector’ s workforce will be negatively correlated with its employment share. This might explain the substantial difference in the reported productivity growth of contracting goods and expanding services. Instrumenting with defense expenditures, I find that the elasticity of worker efficacy with respect to employment shares is substantially negative, albeit imprecisely estimated. The middle of the range of estimates suggests that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies. 

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Summers: We haven’t done it in 15 years and Japan hasn’t done it in a generation

Starts around the 9 min mark. HT: Mark Thoma

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Heterogeneous Mark-Ups, Growth and Endogenous Misallocation

From Michael Peters:

The recent work on misallocation argues that aggregate productivity in poor countries is low because various market frictions prevent marginal products from being equalized. By focusing on such allocative inefficiencies, misallocation is construed as a purely static phenomenon. This paper argues that misallocation also has dynamic consequences because it interacts with firms’ innovation and entry decisions, which determine the economy’s growth rate. To study this link between misallocation and growth, I construct a tractable endogenous growth model with heterogeneous firms, where misallocation stems from imperfectly competitive output markets. The model has an analytical solution and hence makes precise predictions about the relationship between growth, misallocation and welfare. It stresses the importance of entry. An increase in entry reduces misallocation by fostering competition. If entry also increases the economy-wide growth rate, static misallocation and growth are negatively correlated. The welfare consequences of misallocation might therefore be much larger once these dynamic consid- erations are taken into account. Using firm-level panel data from Indonesia, I present reduced form evidence for the importance of imperfect output market and calibrate the structural parameters. A policy, which reduces existing entry barriers, increases growth and reduces misallocation. The dynamic growth effects are more than four times as large as their static counterpart.

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Back to the World: Berkeley’s Economists Attack Policy Issues With Unusual Gusto

Berkeley is having prospective PhD students visit the economics department today, so I wanted to share an old gem on Berkeley’s “real world economics”

WALL STREET JOURNAL (J) 12/01/95 Copyright (c) 1995 Dow Jones & Company, Inc. By Thomas T. Vogel Jr. Staff Reporter of The Wall Street Journal BERKELEY, Calif. –

Activists have taken over at Berkeley, again. The school that was synonymous with 1960s tie-dyed radicalism is once more in the vanguard. This time it’s shaking up the economics profession, and the rebels are on the faculty, the 42 Ph.D.s in the Department of Economics at this University of California campus.

Their battle cry is “real-world economics,” and they talk and write about today’s hot-button issues, such as jobs and wages, immigration policy, the dollar and currency markets, business cycles and technology’s role in economic growth. While intellectually rigorous, many of their pursuits are a sharp departure from the esoteric realms of many academic economists, who churn out papers strewn with Greek- letter formulas understood by few and interesting to even fewer.

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400 years of Chinese economic history in 79 pages – Chris Blattman

400 years of Chinese economic history in 79 pages – Chris Blattman.

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