Distributional Macroeconomics in the Long and Short Run

Projektinformationen

DisMaLS

ID Finanzhilfevereinbarung: 865227

DOI

10.3030/865227

Projekt abgeschlossen

EK-Unterschriftsdatum 30 Januar 2020

Startdatum 1 Februar 2020

Enddatum 31 Januar 2024

Finanziert unter

• EXCELLENT SCIENCE - European Research Council (ERC)

Gesamtkosten

€ 1 598 433,00

EU-Beitrag

€ 1 598 433,00

Koordiniert durch

LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE
United Kingdom

Periodic Reporting for period 3 - DisMaLS (Distributional Macroeconomics in the Long and Short Run)

Berichtszeitraum: 2023-02-01 bis 2024-01-31

Zusammenfassung vom Kontext und den Gesamtzielen des Projekts

A key development in the "dismal science" has been the incorporation of explicit heterogeneity into models of the macroeconomy. As a result of taking micro data seriously, these theories study macroeconomic questions in terms of distributions of microeconomic variables like income or wealth rather than just aggregates. This approach opens up the door to examining the distributional implications of macroeconomic trends, shocks or policies, and to examine the two-way interaction between these distributions and the macroeconomy.

DisMaLS has been advancing this "distributional macroeconomics" agenda both theoretically and empirically. Theoretically, it has done so by developing new theories of the income and wealth distributions and their interactions with the macroeconomy in both the long and short run. Empirically, DisMaLS has brought to the table high-quality Norwegian administrative data to discipline and enrich these theories.

In terms of long-run trends, a striking feature regarding economic growth in many developed countries is that it has been unequally distributed. For example, in the U.S. real household incomes have grown by roughly two percent per year on average but income percentiles corresponding to the bottom 50% of the distribution have stagnated since the 1970s. DisMaLS has used a theory of income and wealth distribution to examine the potential drivers of these distributional trends, in particular automation and rising asset prices.

Turning to the short-run, DisMaLS has addressed some of the important policy challenges raised by the COVID-19 pandemic and the 2022/23 energy crisis. Specifically, the project has developed integrated economic and epidemiological models as well as models of Europe’s cut-off from Russian gas for providing quantitative answers to such policy questions.

Arbeit, die ab Beginn des Projekts bis zum Ende des durch den Bericht erfassten Berichtszeitraums geleistet wurde, und die wichtigsten bis dahin erzielten Ergebnisse

DisMaLS is composed of three main parts. Part has developed a theory of the joint distribution of labor income, capital income and wealth and used it to evaluate a number of candidate explanations of long-run trends in income and wealth inequality. Part II has developed models to study the COVID-19 pandemic as well as the Russian gas cut-off. Part III has leveraged high-quality Norwegian administrative data to empirically discipline and enrich theories of income and wealth distribution as well as to understand their welfare implications and implications for optimal tax policy, in particular those of changing asset prices which have been a major driver of wealth inequality.

Part I: this part has progressed well and according to the original plan. It has resulted in a paper "Uneven Growth: Automation’s Impact on Income and Wealth Inequality" that has been published in the journal “Econometrica” and a number of working papers that study the effect of asset price changes on wealth inequality and welfare and the resulting policy implications.

Part II: this part has resulted in four papers about the cut-off of the German economy from Russian gas, including the influential analysis “What if? The Economic Effects for Germany of a Stop of Energy Imports from Russia” published less than two weeks after Russia’s full-scale invasion of Ukraine, “The Power of Substitution: the Great German Gas Debate in Retrospect” forthcoming in Brookings Papers on Economic Activity, a paper about the Covid pandemic "The Great Lockdown and the Big Stimulus: Tracing the Pandemic Possibility Frontier for the U.S." https://benjaminmoll.com/PPF/ and these lecture notes https://benjaminmoll.com/SIR_notes/ which were widely circulated and influential among economists. We also reported the policy implications to the European Parliament (https://www.europarl.europa.eu/news/en/press-room/20221107IPR49204/meps-hear-experts-on-the-effects-of-the-eu-s-russia-sanctions) various German ministries and the German Chancellery, to the UK Treasury Select Committee (https://committees.parliament.uk/writtenevidence/18792/html/) the UK Cabinet Office, the Mexican Finance Minister among others. The Covid research also forms the backbone of a UK Royal Society Report https://rs-delve.github.io/reports/2020/08/14/economic-aspects-of-the-covid19-crisis-in-the-uk.html. The output of the project was also presented at the "Nobel Symposium Covid-19 and the Economy: Policies and Impacts" http://hassler-j.iies.su.se/nobel/covid.html see slides here https://benjaminmoll.com/six_lessons/.

Part III: this part has progressed well and according to the original plan. The result are two completed working papers, "Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains" http://benjaminmoll.com/SBWD/ and "Asset-Price Redistribution" http://benjaminmoll.com/APR/ already mentioned in Part I. The former is currently being revised for publication in the journal “Review of Economic Studies” and the latter for the “Journal of Political Economy”.

Fortschritte, die über den aktuellen Stand der Technik hinausgehen und voraussichtliche potenzielle Auswirkungen (einschließlich der bis dato erzielten sozioökonomischen Auswirkungen und weiter gefassten gesellschaftlichen Auswirkungen des Projekts)

New methods have been introduced to study the dynamics of wealth inequality, the welfare effect of asset-price changes, the optimal taxation of capital gains, and the effect of behavioral frictions on consumption-saving decisions. These all pushed the state of the art in the study of the "distributional macroeconomics" literature.

Automation's effect on the income distribution

Asset-price redistribution in Norway

Automation increases returns to wealth and capital incomes