Human Capital Investment, Inequality and Economic Growth

From Murphy and Topel:

We treat rising inequality is an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest; how much to acquire; and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.

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Shift in Payouts of Corporate Profits Has Major Revenue and Tax-Reform Consequences

Here is a NBER discussion of some my recent work on tax policy and the economy

In 1980, about 80 percent of business income went to traditional corporations, but research presented at the NBER’s annual Tax Policy and the Economy Conference this year shows that now roughly half of business income is passed through to entities outside of the traditional corporate sector. Researchers find that this change has had a significant effect on the amount of tax revenue government has been able to collect, and has implications for tax reform as well. Work on these subjects and others is featured on the newest NBER research theme page.

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State Taxes and Spatial Misallocation

Pablo Fajgelbaum, Eduardo Morales, Juan Carlos Suarez Serrato, and I have a new paper on the impact of state taxes on the US economy. Here is the abstract:

We study state taxes as a potential source of spatial misallocation in the United States. We build a spatial general-equilibrium model in which the distribution of workers, firms, and trade flows across states responds to state taxes and public-service provision. We estimate firm and worker mobility elasticities and preferences for public services using data on the distribution of economic activity and state taxes from 1980 to 2010. A revenue-neutral tax harmonization leads to aggregate real-GDP and welfare gains of 0.7%. Tax cuts by individual states lower own-state tax revenues and economic activity, and generate cross-state spillovers depending on trade linkages.

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Moved to Opportunity: The Long-Run Effect of Public Housing Demolition on Labor Market Outcomes of Children

From Eric Chyn:

This paper provides new evidence on the effects of moving out of disadvantaged neighbor- hoods on the long-run economic outcomes of children. My empirical strategy is based on public housing demolitions in Chicago which forced households to relocate to private market housing using vouchers. Specifically, I compare adult outcomes of children displaced by demolition to their peers who lived in nearby public housing that was not demolished. Displaced children are 9 percent more likely to be employed and earn 16 percent more as adults. These results contrast with the Moving-to-Opportunity (MTO) relocation study, which detected effects only for children who were young when their families moved. To explore this discrepancy, this paper also examines a housing voucher lottery program (similar to MTO) conducted in Chicago. I find no measurable impact on labor market outcomes for children in households that won vouchers. The contrast between the lottery and demolition estimates remains even after re-weighting the demolition sample to adjust for differences in observed characteristics. Overall, this evidence suggests lottery volunteers are negatively selected on the magnitude of their children’s gains from relocation. This implies that moving from disadvantaged neighborhoods may have sub- stantially larger impact on children than what is suggested by results from voucher experiments where parents elect to participate.

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Fed Interview with Jim Poterba

Poterba on interesting questions in macroeconomics today:

There are just so many exciting topics in macro today. Why are global interest rates so low? What is happening in the eurozone? How do we think about long-term fiscal policy and sustainability in the United States? Why is growth in the U.S. economy slower than it has been? How does recent work on long-term inequality and the relationship between rates of return and growth rates connect to the changing distribution of resources in the United States? I hope I succeeded at least a bit in conveying some of my excitement about these questions.

Poterba on the future of public finance

I tell incoming graduate students that in the field of public economics, the questions we confront are always fresh because economies go through periods of evolving policy mix, but our underlying analytical tools are remarkably stable. When public finance economists talk about the optimal design of a tax system, it is worth remembering that Adam Smith offered four maxims for a good tax system. One of them is that the tax system should impose the smallest possible burden beyond the revenue that is collected from the taxpayer. It’s a very simple statement that the optimal tax code should minimize deadweight burden, and it remains a guiding principle that animates research to this day. The underlying trade-offs in public economics, between equity and efficiency and between raising revenue and creating distortions, have been with us a long time, and they are likely to remain the bedrock of the field.

Full interview is here

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We are hiring full time RAs at Chicago Booth

Apply here

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Poterba discusses High-Income Individuals on Business Taxation with Eric Zwick

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