Periodic Reporting for period 4 - IneqPol (Inequality - Public Policy and Political Economy)
Okres sprawozdawczy: 2022-08-01 do 2023-07-31
Over the past decades, many developed countries have seen considerable increases in income and wealth inequality. Political and economic arguments for and against offsetting this rise in inequality have been put forward. This research program informs this debate by developing new models that capture these trends and by analyzing their optimal policy implications, both theoretically and quantitatively. The goal is to bring together approaches from public economics, labor economics, macroeconomics, and political economy to explore whether rising inequality necessitates institutional responses and, if so, which ones.
This project sheds light on this question from the following three related angles: (1) The changing nature of labor markets and its implications for inequality and tax policy. This part focuses on technological progress (e.g. the replacement of routine tasks) and shifts in the sectoral composition of the economy (e.g. the rise of finance) and what this means for the taxation of labor incomes, profits, and the desirability of basic income policies.
(2) The inter-generational dynamics of inequality and the design of tax and public spending policies to promote economic mobility when different generations are linked by altruism. We develop a normative framework for optimal policies that balance both equality of opportunity principles and efficient parental sorting based on preference heterogeneity over public spending (e.g. on schools).
(3) Wealth inequality and its implications for the political economy of tax policy. This part incorporates capital taxation into the analysis and explore how it can help promote political stability, both when equilibrium taxes depend on the distribution of wealth in society and, conversely, when political influence correlates with wealth.
This project sheds light on this question from the following three related angles: (1) The changing nature of labor markets and its implications for inequality and tax policy. This part focuses on technological progress (e.g. the replacement of routine tasks) and shifts in the sectoral composition of the economy (e.g. the rise of finance) and what this means for the taxation of labor incomes, profits, and the desirability of basic income policies.
(2) The inter-generational dynamics of inequality and the design of tax and public spending policies to promote economic mobility when different generations are linked by altruism. We develop a normative framework for optimal policies that balance both equality of opportunity principles and efficient parental sorting based on preference heterogeneity over public spending (e.g. on schools).
(3) Wealth inequality and its implications for the political economy of tax policy. This part incorporates capital taxation into the analysis and explore how it can help promote political stability, both when equilibrium taxes depend on the distribution of wealth in society and, conversely, when political influence correlates with wealth.
Regarding subproject (1), we have completed 5 research articles. The paper “Taxation and the Superrich” by Florian Scheuer and Joel Slemrod has been published in the Annual Review of Economics and appeared in August 2020. Moreover, Florian Scheuer and Joel Slemrod have completed the new paper “Taxing Our Wealth”, which was published in the Journal of Economic Perspectives in February 2021. This paper also bears on issues related to subproject (3). Pablo Kurlat and Florian Scheuer’s paper “Signaling to Experts”, which deals with the efficiency properties of labor markets with heterogeneous information and designs welfare-improving policies in this setting, has been published in the Review of Economic Studies in 2021.
Uwe Thuemmel, a Postdoc funded through the ERC grant, has completed his paper “Optimal Taxation of Robots”, which was published in the Journal of the European Economic Association in 2023. He has also written the paper “Optimal Linear Taxation and Education Policy with Skill-Biased Technological Change” joint with Bas Jacobs, which is forthcoming in the journal Internation Tax and Public Finance.
Anasuya Raj, another Postdoc hired through the ERC grant in July 2020, has completed two papers related to subprojects (2) and (3). The first, “Optimal income taxation in the presence of networks of altruism”, considers optimal income taxation in a framework with general forms of altruism, in line with the Description of Action for part (2). Her paper “On the Political Economy of the Income-Tax Threshold", with Pierre Boyer, directly speaks to issues central to subproject (3). Her paper “European Fiscal Reform Preferences of Parliamentarians in France, Germany and Italy” (joint with with Sebastian Blesse, Massimo Bordignon, Pierre Boyer, Piergiorgio Carapella, Friedrich Heinemann and Eckhard Janeba) was published in May 2022 in European Union Politics.
Two other Postdocs, who were both recruited on the international job market, started in the summer of 2021. Moritz Drechsel-Grau had his paper “Inequality and Income Dynamics in Germany” (joint with Andreas Peichl, Johannes Schmieder, Stefanie Wolter, Hannes Walz, Kai Schmid) accepted for publication in Quantitative Economics in April 2022. He also completed his paper “Macroeconomic and Distributional Effects of Higher Minimum Wages,” which directly relates to subproject (1), and which has received a "revise and resubmit" from the Journal of Political Economy: Macroeconomics. His other papers “Gender Gaps and the Role of Bosses” (joint with Felix Holub) and “Falling Behind: Has Rising Inequality Fueled the American Debt Boom?” (joint with Fabian Greimel), both related to subprojects (2) and (3), are all be ready for journal submission.
Finally, Julien Senn has been employed as a Postdoc on the ERC grant until its conclusion on August 31, 2023. His paper (with Everett, J.A.C. Colombatto, Michel Maréchal, Molly Crockett, et al.) entitled “Moral Dilemmas and Trust in Leaders During a Global Health Crisis” (with Everett, J.A.C. Colombatto, Michel Maréchal, Molly Crockett, et al.) was published in Nature Human Behavior in 2021, and his paper “Corruption, Punishment and Cooperation” (with Justin Buffat) was invited for resubmission at Games and Economic Behavior. He submitted his papers “Other-Regarding Preferences and Redistributive Politics” (with Thomas Epper and Ernst Fehr) and “Incentivizing Non-routine Collaborative Work: Evidence from a Real Effort Experiment” (with Lorenz Goette) to journals. All these papers directly speak to subproject (3).
The PI has also continued his work on the project “Taxing High-Powered Entrepreneurship” (joint with Eduardo Azevedo and Kent Smetters, both at the University of Pennsylvania), which contributes to the agenda outlined in subprojects (2) and (3). In this context, we have also been supported by two student research assistants, funded through the ERC grant, to help with the extensive data work involved in the project. Both research assistants, Min Yang an Junlei Chen, have been hired in the fall of 2020 at the University of Zurich. Finally, Florian Scheuer has worked on two other projects, “The plasticity of capital gains over the lifecycle” (with Frederick Bennhoff) and “Putting the 'Finance' into 'Public Finance'" (with Mark Aguiar and Benjamin Moll), all directly related to subproject (3). Nicolas Bauer and Frederik Bennhoff have been hired as research assistants to support this research (Frederik Bennhoff was later promoted to coauthor).
Uwe Thuemmel, a Postdoc funded through the ERC grant, has completed his paper “Optimal Taxation of Robots”, which was published in the Journal of the European Economic Association in 2023. He has also written the paper “Optimal Linear Taxation and Education Policy with Skill-Biased Technological Change” joint with Bas Jacobs, which is forthcoming in the journal Internation Tax and Public Finance.
Anasuya Raj, another Postdoc hired through the ERC grant in July 2020, has completed two papers related to subprojects (2) and (3). The first, “Optimal income taxation in the presence of networks of altruism”, considers optimal income taxation in a framework with general forms of altruism, in line with the Description of Action for part (2). Her paper “On the Political Economy of the Income-Tax Threshold", with Pierre Boyer, directly speaks to issues central to subproject (3). Her paper “European Fiscal Reform Preferences of Parliamentarians in France, Germany and Italy” (joint with with Sebastian Blesse, Massimo Bordignon, Pierre Boyer, Piergiorgio Carapella, Friedrich Heinemann and Eckhard Janeba) was published in May 2022 in European Union Politics.
Two other Postdocs, who were both recruited on the international job market, started in the summer of 2021. Moritz Drechsel-Grau had his paper “Inequality and Income Dynamics in Germany” (joint with Andreas Peichl, Johannes Schmieder, Stefanie Wolter, Hannes Walz, Kai Schmid) accepted for publication in Quantitative Economics in April 2022. He also completed his paper “Macroeconomic and Distributional Effects of Higher Minimum Wages,” which directly relates to subproject (1), and which has received a "revise and resubmit" from the Journal of Political Economy: Macroeconomics. His other papers “Gender Gaps and the Role of Bosses” (joint with Felix Holub) and “Falling Behind: Has Rising Inequality Fueled the American Debt Boom?” (joint with Fabian Greimel), both related to subprojects (2) and (3), are all be ready for journal submission.
Finally, Julien Senn has been employed as a Postdoc on the ERC grant until its conclusion on August 31, 2023. His paper (with Everett, J.A.C. Colombatto, Michel Maréchal, Molly Crockett, et al.) entitled “Moral Dilemmas and Trust in Leaders During a Global Health Crisis” (with Everett, J.A.C. Colombatto, Michel Maréchal, Molly Crockett, et al.) was published in Nature Human Behavior in 2021, and his paper “Corruption, Punishment and Cooperation” (with Justin Buffat) was invited for resubmission at Games and Economic Behavior. He submitted his papers “Other-Regarding Preferences and Redistributive Politics” (with Thomas Epper and Ernst Fehr) and “Incentivizing Non-routine Collaborative Work: Evidence from a Real Effort Experiment” (with Lorenz Goette) to journals. All these papers directly speak to subproject (3).
The PI has also continued his work on the project “Taxing High-Powered Entrepreneurship” (joint with Eduardo Azevedo and Kent Smetters, both at the University of Pennsylvania), which contributes to the agenda outlined in subprojects (2) and (3). In this context, we have also been supported by two student research assistants, funded through the ERC grant, to help with the extensive data work involved in the project. Both research assistants, Min Yang an Junlei Chen, have been hired in the fall of 2020 at the University of Zurich. Finally, Florian Scheuer has worked on two other projects, “The plasticity of capital gains over the lifecycle” (with Frederick Bennhoff) and “Putting the 'Finance' into 'Public Finance'" (with Mark Aguiar and Benjamin Moll), all directly related to subproject (3). Nicolas Bauer and Frederik Bennhoff have been hired as research assistants to support this research (Frederik Bennhoff was later promoted to coauthor).
We have developed new theoretical tools and implemented them quantitatively, with an emphasis on the implications of the above-mentioned challenges for the design of real-world tax policies.