does grassroots democracy reduce income inequality in china abstract using village and household survey data collected from 48 villages of eight chinese provinces for the period 1986 2002 this paper studies how the introduction of village elections affects income distribution at the village level we estimate both a static fixed effect panel model and a dynamic panel model for the within village gini coefficient and take care of the endogeneity of the introduction of elections the dynamic panel model shows that having elections reduces the gini coefficient by 0 04 or 14 3 of the sample average we also find that elections tend to increase the income shares of poorer portions of the population further econometric analysis based on dynamic panel models shows that elections increase per capita public expenditures by 271 yuan but do not increase the level or progressiveness of net or total income transfer in a village therefore elections positive role in reducing income inequality is not played through more income redistribution but through more pro poor public investment

tenure land rights and farmer investment incentives in china the goal of this paper is to understand the nature of the property rights associated with china s land tenure systems and to study the impact of these property rights on agricultural production efficiency the results show that land tenure and associated property rights in rural china affect the production behavior of farmers the most robust finding is that the right to use land for long periods of time encourages the use of land saving investments while the results show that land tenure affects agricultural production decisions the difference between collective and private plots however is small compared to the private plotcommunal productivity gap that existed in the pre reform period 1998 elsevier science b v all rights reserved

strikes and political activism of trade unions theory and application to bangladesh the behavior of bangladeshi trade unions is characterized bypolitical activism and momentous strikes called hartalsthere have played a crucial part in most political changes inthis country we offer a theoretical framework for discussingthis fact and we test empirically its main prediction bybringing out the political cycle that characterizes theoccurrence of strikes in bangladesh

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

reciprocated unilateralism in trade reforms with majority voting this paper shows how unilateral liberalization in one country can increase the voting support for reciprocal reduction in trade barriers in a partner country when trade policies are determined simultaneously in the two countries we show the possibility of multiple political equilibria one in which the countries are both protectionist and another in which they trade freely with each other starting with trade protection in both countries a unilateral reform in one country is shown to bring about a free trade equilibrium that obtains majority support in both countries

community membership aspirations the link between inequality and redistribution revisited the issue at stake is to explain why redistributive policies may vary so greatly for a given distributional skewness to this end we abandon the stylized median voter and study how distributional tensions can act in many different ways depending on social affinity between the different economic classes and their prospect of upward or downward mobility in particular we consider that socioeconomic group membership through its implied social interactions and peer effects is an important determinant of an individual s outcome hence agents while voting on a social contract must take into account the consequences of their choice over their ex post belonging to a particular community this allows us to shed light on how the endogenous sorting of the population into clusters may interact with the balance of political power leading to a non monotonic relationship through the pattern of community formation in the economy between inequality and the pressure for redistributive policies

political economy of public policies insights from distortions to agricultural and food markets the agricultural and food sector is an ideal case for investigating the political economy of public policies many of the policy developments in this sector since the 1950s have been sudden and transformational while others have been gradual but persistent this paper reviews and synthesizes the literature on trends and fluctuations in market distortions and the political economy explanations that have been advanced based on a rich global data set covering a half century of evidence on commodities countries and policy instruments the paper identifies hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible

earthquake fatalities the interaction of nature and political economy to say that the level of fatalities resulting from an earthquake is inversely related to a country s per capita level of income is hardly novel what makes our approach novel is that we relate fatalities to both per capita income and the level of inequality that exists within a country through their joint impact on the likelihood of collective action being taken to mitigate the destructive potential of quakes we first develop a theoretical model which offers an explanation as to why in some environments different segments of society prove incapable of arriving at what all parties perceive to be an agreeable distribution of the burden of the necessary collective action causing the relatively wealthy simply to self insure against the disaster while leaving the relatively poor to its mercy following this we test our theoretical model by evaluating 269 large earthquakes occurring worldwide between 1960 and 2002 taking into account other factors that influence a quake s destructiveness such as its magnitude depth and proximity to population centers using a negative binomial estimation strategy with both random and fixed estimators we find strong evidence of the theoretical model s predictions that is while earthquakes themselves are natural phenomena beyond the reach of humankind our collective inaction with respect to items like the creation and enforcement of building codes failure to retrofit structures and to enact quake sensitive zoning clearly plays a part in determining the actual toll that a given quake takes and it is through these and other examples of collective inaction that limited per capita income and inequality couple together with a given quake s natural destructive power in determining the actual fatalities resulting from a quake

wealth inequality and collective action abstract we study the effect of inequality in the distribution of endowments of private inputs e g land wealth that are complementary in production with collective inputs e g contribution to public goods such as irrigation and extraction from common property resources on efficiency in a class of collective action problems we focus on characterizing the joint surplus maximizing level of inequality making due distinction between contributors and non contributors in a framework that allows us to consider a wide variety of collective action problems ranging from pure public goods to impure public goods to commons we show that while efficiency increases with greater equality within the groups of contributors and non contributors so long the externalities positive or negative are significant there is an optimal degree of inequality between these groups

income inequality size of government and tax progressivity a positive theory abstract i investigate the relationship between income inequality and the composition of public spending in redistributive policies i extend the meltzer richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump sum transfer but also the level of provision of a public good the governmental budget is balanced thus these two choices determine the tax rate on labor income the multidimensionality of the policy space implies that there is no condorcet winner i adopt a citizen candidate model of electoral competition to tackle this problem i show that the progressivity of the tax system is increasing in the mean to median income ratio while the size of the government need not be this means that higher income inequality implies a more progressive tax system but in contrast with the traditional analysis it may also result in a smaller size of government such results are consistent with the most recent findings in the empirical literature

social ideology and taxes in a differentiated candidates framework many observers argue that political polarization particularly on social and cultural issues has increased in the united states how does this influence the political competition on economic issues we analyze this question using a framework in which two officemotivated candidates differ in their fixed ideological position and choose a level of government spending to maximize their vote share in equilibrium candidates cater to a set of swing voters who contain socially conservative and economically liberal voters as well as socially liberal and economically conservative voters we analyze how voters cultural preferences and candidates cultural positions influence equilibrium economic positions jel d72 e62 h50 z13 many observers have argued that polarization between the two major parties in the united states particularly on noneconomic cultural matters has increased this is reflected both at the elite level in particular in congress poole and rosenthal 1984 1985 2000 and among democratic and republican activists and voters abramowitz and saunders 2008 harbridge and malhotra 2011 in the american national election survey respondents report their own ideological position on a scale from 1 very liberal to 7 very conservative the number of respondents who report one of the extreme positions 1 2 6 or 7 has grown from 20 and 21 percent in 1972 and 1976 to 31 and 30 percent in the 2004 and 2008 respectively moreover liberal and conservative voters have become considerably more reliable supporters of democrats and republicans respectively over the last generation 1 if we accept the widespread view that reagan s conservative revolution has created a cultural wedge between the parties that only widened in the 1990s and 2000s what consequences for the parties economic policies should we expect

a political economy theory of partial decentralization we revisit the classic problem of tax competition in the context of federal nations and derive a positive theory of partial decentralization a capital poor median voter chooses to use redistributive capital taxes to provide public goods the expectation of high capital taxes however results in a small capital stock which lowers returns to redistribution the median voter therefore wants to commit to a lower level of capital taxes she does so by setting a partial degree of decentralization in the constitution the equilibrium degree of decentralization balances the positive effect of tax competition on capital taxes with the loss in redistribution that results we show that the degree of decentralization is nonmonotonic in inequality increasing in the redistributive efficiency of public good provision and decreasing in capital productivity when public goods are heterogeneous in their capacity to transfer funds all voters agree that goods with high redistributive capacity should be decentralized

is inequality harmful for growth comment endogenous growth models have reignited interest in institutional and path dependencies in the economic growth process one reason for the interest in endogenous growth models is that they may explain why countries consistently grow at different rates in this vein it has been recently proposed that greater economic inequality reduces future economic growth an important paper in this literature is by torsten persson and guido tabellini 1994 who will be referred to as pt pt s model shows why it is reasonable to expect a negative relationship between inequality and future economic growth moreover their empirical evidence is consistent with their contention if pt s findings are robust to other data sets there would be important policy implications for example they imply that policy makers should not only be concerned with the distributional implications of government policies for political and social reasons but also because income distribution has long run effects on economic growth this indicates that greater u s income inequality since the early 1970 s may have resulted in lower subsequent economic growth however pt s results are somewhat fragile to various specifications suggesting that they should be replicated with different data sets and over different time periods pt p 617 with these implications in mind this study employs data from a panel of u s states to further explore the relationship between economic growth and income inequality in what follows section i summarizes pt s study and discusses how this comment extends their findings the empirical implementation and results in section ii directly examine the link between overall income inequality and growth section iii expands the analysis to alternative measures of income distribution and government policy one emphasis in section iii is the distinction between how the overall income distribution especially at the tails influences economic growth from how the relative well being of the median voter affects economic growth section iv provides some concluding discussion

dimensions and diversity of property rights in rural china dilemmas on the road to further reform abstract this paper contributes to the debate over land tenure in rural china by conceptualizing and measuring multiple dimensions of property rights in a way that elucidates the competing interests that are affected by the property rights regime utilizing a unique village level data set this paper argues that the regional and temporal variation in rural property rights signals a pattern in which decentralized institutional innovation occurs in response to the competing interests of the national state of local authorities and of present and possible future individual land users unlike the earlier debate concerning the household responsibility system the current property rights dilemma is intrinsically more complex because the potential conflicts of interest between individuals local collectives and the state are greater resolution of that debate will ultimately require careful exploration of the reality and substance of the tradeoffs and competing interests that make further reform of rural property rights so difficult

growth trade and inequality we introduce firm and worker heterogeneity into a model of innovation driven endogenous growth individuals who differ in ability sort into either a research activity or a manufacturing sector research projects generate new varieties of a differentiated product projects differ in quality and the resulting technologies differ in productivity in both sectors there is a complementarity between firm quality and worker ability we study the co determination of growth and income inequality in both the closed and open economy as well as the spillover effects of policy in one country to outcomes in others

on the faustian dynamics of policy and political power this paper examines the faustian dynamics of policy and power we posit a general class of dy namic games in which current policies affect the future distribution of political power resulting in the following faustian trade off if the current ruler chooses his preferred policy he then sacrifices future political power yet if he wants to preserve his future power he must sacrifice his present policy objec tives the trade off comes from the fact that the current political ruler pivotal voter cannot uncouple the direct effect of his policy from its indirect effect on future power a policy endogenous pe equilibrium describes this endogenous transfer of power and the resulting evolution of policy and political power over time we show that the faustian trade off in a pe equilibrium is decomposed into two basic rationales the political preservation effect induces more tempered policy choices than if one s policy choice did not affect one s political fortunes however the reformation effect induces more aggressive policies in order to exploit the productivity gains from policies chosen by even more aggressive successors we distinguish between political systems that give rise to monotone faustian dynamics political power that progressively evolves towards more fiscally liberal types of leaders and cyclical faustian dynamics political power that oscillates between liberal and conservative types of leaders in each case we show that the faustian trade off moderates the choices of each type of leader

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

how much expropriation hazard is too much the effect of land reallocation on organic fertilizer usage in rural china in china land is reallocated on either a full scale or a partial basis by employing a unique farm survey that deliberately draws a distinction between full scale and partial land reallocations and by decomposing their respective expropriation risk effects we find that the significantly negative effect of expropriation risk on organic fertilizer usage is driven solely by full scale reallocation consistent with this finding a reduction in the predicted expropriation hazard rate by half leads to a sizable increase of 491 in organic fertilizer usage in villages with a history of full scale reallocation and has an estimated productivity effect of 19 1

pecuniary emulation inequality and growth abstract we study a two class growth model in which agents care about both consumption and the social perception of their wealth rank the latter determines the social status enjoyed by agents social perceptions are based upon noisy signals of wealth and in equilibrium there is incomplete separation of classes the steady growth rate of the economy increases with the full information status differential between classes and contrary to the growth model without status it is affected by the initial level of wealth inequality both too much equality and too much inequality are detrimental to economic growth

compensations as signaling devices in the political economy of reforms we propose an explanation for why efficient reforms are not carried out when losers can block their implementation and compensations are feasible in our model a government tries to sequentially implement two efficient reforms by bargaining with interest groups the organization of interest groups is endogenous compensations are distortionary and different governments care differently about distortions governments use low compensations to discourage losers who just want to receive transfers from organizing this comes at the cost of reforms being blocked by interest groups with relatively high losses resulting in a bias against payment of compensations and the implementation of reforms

land and the transition from a dual to a modern economy tenurial contracts in agriculture can be an initial source of wealth accumulation for dynasties of poor credit constrained individuals the income from such contracts can be invested in education of offspring who then can find work in the formal manufacturing sector this process allows the economy to develop into a modern economy with a large manufacturing sector an excessive number of poor individuals competing for scarce land however drives up the rental price of land which then slows the process of accumulation and forces the economy to converge to a less efficient dual equilibrium in such cases a policy of land redistribution coupled with a temporary education subsidy may be needed to push the economy to a modern equilibrium

land tenure choice in chinese villages the rational versus the political model the rational and political decision models are developed and tested for the land tenure choice in rural china a novelty of the test is to link the collective decision with general relative factor scarcities competing hypotheses are developed for the two models and tested with panel data collected on 83 chinese villages the results show that neither model is strongly rejected although the political model fares slightly better in more sophisticated econometric testing this suggests that popular political participation is emerging in chinese villages implications of this finding to chinese land policy are discussed

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

social polarization fiscal instability and growth abstract we present a dynamic model of fiscal policy in a simple growth framework where social polarization of preferences plays a central role in the evolution of fiscal instability and growth collapse in a highly polarized society a deficit occurs endogenously fiscal spending path becomes more volatile output collapses and economic growth rate is reduced along the transition path to a new lower level of output one novel feature is that the size of fiscal deficit the magnitude of fiscal volatility and the size of reduction in output and growth rate are explicitly shown to be increasing functions of the degree of social polarization this is because of the positive relationship between the polarization of preferences and the incentive for policymakers or socio economic groups to overexploit the government resources in a common pool setting polarization effect thereby we offer a fiscal instability channel that negatively links social polarization and growth which is an alternative yet distinct explanation for the empirical finding that social polarization is harmful to growth moreover we fully distinguish the incentive to engage in such short term policies under political uncertainty from that under polarization polarization and political uncertainty are shown to be distinct yet critical to the dynamic coordination failure in the common pool setting

managed trade the us mexico sugar suspension agreements under the 1994 north american free trade agreement mexican sugar producers were ultimately granted free access to the us sugar market while all other suppliers including us refiners were subject to supply quotas following a surge in imports of mexican sugar the american sugar coalition initiated anti dumping and countervailing duty adcvd proceedings against mexico in early 2014 in december 2014 the adcvd cases were halted as a result of two suspension agreements negotiated between the us and mexico this paper contributes to a small number of empirical studies that have estimated the impact of suspension agreements we measure the impacts of the adcvd filings and the suspension agreements on us domestic raw and refined prices the raw to refined margin and the quantity and composition of sugar imports from mexico results suggest us raw sugar prices increased by 3 per lb 14 under adcvd proceedings equivalent to an ad valorem tariff between 40 and 50 while the suspension agreements increased us raw sugar prices by 5 70 tariff equivalent us refined sugar prices increased by similar amounts under the adcvd proceedings and the suspension agreements 4 5 per lb ultimately both the adcvd proceedings and the suspension agreements significantly reduced sugar imports from mexico us sugar refiner economic welfare hinges critically on the quantity and composition of raw sugar imports as such refiner revenue following the adcvd filings and suspension agreements is estimated to have declined by 16 relative to a free trade environment

income inequality education expenditures and growth abstract recent studies have reported a negative association between income inequality and economic growth if true what accounts for this finding what are possible transition mechanisms that might link the two this paper explores one such mechanism income inequality raises expenditures for public education as a fraction of gross domestic product gdp although public education expenditures are positively associated with future economic growth the contemporaneous effect upon growth is negative given this cost upon current growth these findings may help to explain the lack of a large positive effect from the growth of human capital upon economic growth as reported in the literature

aid effectiveness and the politics of personalism this article examines how political institutions that provide an incentive to cultivate a personal vote condition the relationship between foreign aid and economic growth in developing country democracies politicians in aid recipient countries with high levels of personalism are more likely to pursue corruption and target government spending to narrow constituencies because personalism affects these outcomes it provides incentives to use foreign aid for politically motivated spending at the expense of investing foreign aid in growth promoting public goods using panel data from 61 aid recipient democracies from 1961 to 2001 the author finds that aid increases growth in democracies with less personalist institutions but decreases growth in countries with high personalism the author also shows that personalism conditions the relationship between aid and the composition of government spending aid increases spending on public goods relative to narrow particularistic goods in countries with low person

what are the distributional implications of halving poverty in south africa when growth alone is not enough the united nations millennium declaration commits to halving extreme poverty between 2000 and 2015 the south african government has set a goal of halving poverty by 2014 although the meaning of this goal has not yet been defined this article frames government s stated target of halving poverty by 2014 in terms of specific measures of the poverty gap and poverty headcount ratio using income and expenditure survey microdata with the poverty line as defined here approximately half the south african population falls below the poverty line despite this the aggregate poverty gap is surprisingly small at about 3 of gross domestic product projections of poverty in 2014 under various growth scenarios indicate that growth alone will be insufficient to halve poverty by then and that any worsening of distribution will put the target of halving poverty by 2014 far beyond reach however projections of the effects of a range of growth and distributional scenarios on poverty using a new method for simulating

property rights labour markets and efficiency in a transition economy the case of rural china we investigate the consequences of imperfect factor market development for farm efficiency in north china we estimate the extent to which an inverse relationship in farm productivity can be attributed to the administrative as opposed to market allocation of land combined with unevenly developed off farm opportunities using a new household survey we find considerable inefficiency in the use of labour this inefficiency is alleviated by external labour markets and to a limited degree by administrative reallocations the reallocations do not go far enough however which raises important questions about con straints on rental activity and property rights formation more generally jel classification q15 012

different ways of looking at old issues a time series approach to inequality and growth in this article we propose an econometric approach that steers clear of parameter heterogeneity omitted variable bias and endogeneity problems from which suffers the econometric analysis of economic growth we propose to investigate the relation between income inequality and economic growth in a cointegrated var setting and present an application to belgium us and finland

education democracy and growth abstract this note presents a model of endogenous growth where redistribution determined by a political equilibrium is in the form of public education it is shown that there need not be a negative relationship between growth and redistribution as public education increases the level of human capital in the conomy and at the same time tends to produce a more even income distribution

does income polarization affect economic growth the case of the european regions ezcurra r does income polarization affect economic growth the case of the european regions regional studies this paper examines the relationship between income polarization and economic growth in the regions of the european union over the period 1993 2003 the results indicate that the level of income polarization is negatively associated with regional growth this finding is in fact robust to various alternative specifications including a number of additional explanatory variables such as initial per capita gross domestic product industry mix human capital stock population density or market potential furthermore it should be noted that the observed negative correlation between polarization and economic performance does not depend on the number of groups used to analyse the degree of income stratification within the sample regions ezcurra r la polarisation des revenus affecte t elle la croissance economique le cas des regions europeennes regional studies cet article etudie les relations en

intra generational equity and sustainable welfare a time series analysis for the uk and sweden this paper discusses the importance of intra generational equity to sustainable development it outlines a number of methodologies for measuring income inequality in the economy and presents several possible ways of incorporating the impact of distributional effects into measures of welfare in the economy the authors highlight in particular an index developed by atkinson atkinson a b 1970 distributive politics and economic growth q j econ may 465 490 based on the social welfare model this method possesses two main advantages over other methods firstly it is expressed directly in terms of social well being secondly value judgements incorporated into the measure are made explicit through the parameter o which expresses society s degree of aversion to income inequality the paper calculates the value of the atkinson index for two case study countries sweden and the uk between 1950 and 1996 for a central estimate of o0 8 the results show that the welfare loss due to inequalities in the distribution of income varied between 5 and 10 for sweden and between 6 and 14 for the uk with the higher values coming towards the end of the period the paper explores the sensitivity of these results to changes in the value of o for the case of the uk and discusses the relevance of the work to the measurement of sustainable welfare 2000 elsevier science b v all rights reserved

income distribution and investment abstract after being the subject of a heated debate during the sixties and the seventies the relation between income distribution and growth has received renewed attention in recent years the new literature has focused on three channels whereby this relation can occur imperfections in capital markets voting on fiscal policy and political instability in all these approaches growth in or outside the steady state is the result of investment in physical or human capital therefore these theories can also be stated and tested in terms of the effects of income distribution on investment this has the double advantage of reducing the complexity of a necessarily brief survey and of bringing out more clearly the main elements of novelty in this literature so far empirical implementations of these theories have in general been restricted to reduced form regressions of growth or equivalently investment on income distribution and other variables in this survey i take a step further and test the three approaches by explicitly estimating the role of the imperfections in capital markets of government expenditure and of political instability in mediating the effects of income distribution on investment

income inequality government expenditures and growth this paper investigates the relationship between income inequality and growth by utilizing the recently published deininger squire data set most of the recent empirical growth literature suggests a negative relationship between inequality and growth on the basis of reduced form growth equations this is also found in the author s study some effort is made to discuss the argument behind the perceived negative relationship between inequality and growth according to the fiscal policy approach a high level of income inequality leads to a higher demand for redistribution which in turn affects growth through resource allocation out of investment or through incentive distorting taxes needed to fund the redistribution it is suggested that the last mentioned relationship between government expenditure and growth is more likely to be non linear positive with small amounts and negative with large amounts such a relationship however is only found for public goods thus government expenditure on law and ord

policy uncertainty electoral securities and redistribution this paper investigates how uncertainty about the adoption of a redistribution policy affects political support for redistribution when individuals can trade policy contingent securities in the stock market we show that the demand for redistribution is always smaller than in the case where no policy insurance market is available consistent with the empirical evidence our analysis implies that in economies with well developed financial markets the level of redistribution decreases with the level of participation in these markets and with income inequality we show that the existence of a policy insurance market may increase future expected inequality even if a majority of individuals are redistributing resources through private transfers

promise and pitfalls in the use of secondary data sets income inequality in oecd countries as a case study this paper examines the role of secondary data sets in empirical economic research taking the field of income distribution as a case study we illustrate problems faced by users of secondary statistics showing how both cross country comparisons and time series analysis can depend sensitively on the choice of data after describing the genealogy of secondary data sets on income inequality we consider the main methodological issues and discuss their implications for comparisons of income inequality across oecd countries and over time the lessons to be drawn for the construction and use of secondary data sets are summarized at the end of the paper

divided we stand united we fall the hume north jones mechanism for the rise of europe the great divergence in incomes between europe and the rest of the world occurred relatively recently why was it that western europe once a backward outpost on the fringes of the eurasian continent able to dominate in terms of income and technology the previously successful eastern economies several mechanisms have been identi ed to account for the rise of europe this paper formalizes one important mechanism the intellectual origins of which can be traced back to hume and weber and which was fully though informally articulated by e l jones this mechanism emphasizes the contrast between the european states system and the eastern empires political competition for a mobile tax base in a states system forces rulers to expropriate less from their subjects and to supply relatively more public services by effectively limiting the exit options of the ruled an empire rewards its ruler with a captive tax base that can be subjected to relatively higher levels of expropriation without a similar rise in public services provided the states system thus encourages higher levels of capital accumulation while the empire stises it the successes of the eastern empires in their consolidation phase are due to the competition they initially faced from neighboring states since europe escaped such consolidation the process of accumulation there never faced the impediments its eastern counterparts did the paper thus also provides a structural explanation for the emergence of institutions in europe that led to relatively secure property rights

international trade and the accumulation of human capital changes in the terms of trade affect both the incentives and the ability of individuals to purchase education in a credit constrained economy a model is developed that shows how individual decision making is affected in a small economy when it opens up to trade empirical results indicate that credit constraints are an important factor influencing school enrollment rates particularly in low income countries as a result countries with low human capital stocks tend to increase their accumulation of human capital with increased trade the response in high income countries is more muted

grassroots democracy and local governance evidence from rural china summary this paper studies the impacts of village elections on the accountability of the village committee local fiscal sharing and state taxation in rural china using data of 48 villages for the period of 1986 2002 elections are found to substantially increase the share of public expenditures in the village budget but reduce the shares of administrative costs and income handed to the township government these findings suggest that elections have enhanced the accountability of the village committee but weakened local fiscal sharing and the state s grip no strong evidence is found that state taxation is affected by elections nor is it found that the role of a more competitive election is different from that of a closed election

slow development and special interests this article argues that a natural implication of an innovation based theory of growth is that slow development facilitates the formation of special interest groups we demonstrate this in a growth model where innovations take the form of new goods and new production processes and where factor suppliers in individual industries can organize to form rent extracting special interest groups we then examine the effect these groups have on an economy s subsequent development we find that these groups can retard an economy s development for extended periods but not permanently their long run effect is to increase the volatility of the development process

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

history lessons institutions factor endowments and paths of development in the new world the explanations offered for the contrasting records of long run growth and development among the societies of north and south america most often focus on institutions the traditional explanations for the sources of these differences in institutions typically highlight the significance of national heritage or religion we in contrast argue that a hemispheric perspective across the wide range of colonies established in the new world by the europeans suggests that although there were many influences factor endowments or initial conditions had profound and enduring effects on the long run paths of institutional and economic development followed by the respective economies

inequality and growth uncovering the main conclusions from the empirics abstractthis paper is a critical survey of the empirical literature on the effects of inequality on economic growth we conclude that it is most likely that the disparities found in the results are due to differences in the type of countries and time periods included in the samples the variable used to measure inequality the structure of the data and the estimation techniques these findings suggest that the mechanisms that link inequality to growth are likely to operate differently in different circumstances an element that may offer important guidelines for both policy makers and researchers

is democracy more expropriative than dictatorship tocquevillian wisdom revisited abstract we reexamine the incentive effect of political democracy on the tax rate by defining a political regime over two dimensions the extent of the franchise and the extent that the redistribution of tax revenues is biased towards the rich standard tocquevillian models assume that even if there is limited franchise there is no redistribution bias from this it follows that democracy is more expropriative than oligarchy because a poorer median voter opts for higher taxes introducing the realistic assumption of a redistribution bias we find a countervailing effect democratization decreases exploitation by the rich on the disenfranchised poor since tax revenues are redistributed over a larger base the median voter may gain less from redistributive taxation we call this the olson effect

economic performance through time prize lecture to the memory of alfred nobel december 9 1993 this abstract was borrowed from another version of this item

the short run relationship between inequality and growth evidence from oecd regions during the great recession abstractthis paper provides evidence on the relationship between income inequality and economic growth in organisation for economic co operation and development oecd regions during the decade 2003 13 it combines household survey data and macroeconomic databases covering over 200 comparable regions in 15 oecd countries the econometric results based on two alternative sets of instruments highlight a general negative association between inequalities and economic growth since the start of the economic crisis this relationship is sensitive to the type of urban structure higher inequalities seem to be more detrimental for growth in regions characterized by medium to large sized cities while regions characterized by small cities and rural areas are less affected

growth versus welfare in a model of nonrival infrastructure abstract the paper constructs a model of endogenous growth where infrastructure acts as an accumulable stock generating a nonrival input service steady state growth paths are studied for market and command economies in the former a final good is produced privately and as in many developing economies infrastructure accumulated on noncompetitive basis by the state the command economy allocates resources by solving a grand optimization exercise the transitionally stable steady growth rate for the market economy dominates the command economy growth rate due to the joint presence of noncompetitive behaviour by the state and noninternalizable externalities

landownership concentration and the expansion of education we study the relationship between large landownership concentration and the expansion of mass education in nineteenth century prussia cross sectional estimates show a negative association between landownership concentration and enrollment rates fixed effects panel estimates indicate that regions with an initially stronger landownership concentration exhibit increasing enrollment rates this relationship is not driven by differences in the supply of schooling we argue that the implementation of agricultural reforms including the stepwise abolition of serfdom is an important driver of the change in enrollment the results are consistent with the interpretation that emancipation from labor coercion increased the private demand for education

the survival of the welfare state this paper provides an analytical characterization of markov perfect equilibria in a model with repeated voting where agents vote over distortionary income redistribution a key result is that the future constituency for redistributive policies depends positively on current redistribution since this affects both private investments and the future distribution of voters the model features multiple equilibria in some equilibria positive redistribution persists forever in other equilibria even a majority of beneficiaries of redistribution vote strategically so as to induce the end of the welfare state next period skill biased technical change makes the survival of the welfare state less likely

aggregate investment and political instability an econometric investigation although in theory the long run effect of uncertainty on investment is ambiguous available econometric evidence widely supports a negative association between aggregate investment and political instability a shortcoming of this body of evidence is that it has failed to investigate the existence and direction of causality between these two variables this paper fills this gap by testing for such causal and negative long run relationship between political instability and investment we find there is a causal relation going from instability to investment but it is positive and particularly strong in low income countries this finding is robust to various sensitivity checks

esther duflo 2010 john bates clark medalist esther duflo winner of the 2010 john bates clark medal has made extraordinary contributions to development economics she exemplifies and has played a vital role in the renaissance of development economics over the past decade she has erected and inspired a research apparatus all over the developing world that integrates large scale field experiments with economic theory to yield important insights for development policy and our understanding of behavior and institutions in developing countries i ll divide my discussion of esther s work into four categories educational production the economic lives of the poor women as decisionmakers and a broad category of market and policy failures i will then offer some thoughts on esther s role as a scholar activist

calculation and decomposition of income inequality in low and middle income countries a survey data analysis this article estimates income inequality in a sample of four low and middle income lmi countries namely albania nepal tajikistan and tanzania using the household survey data nepal living st

median voter equilibria in the neoclassical growth model under aggregation we study a dynamic version of meltzer and richard s median voter model where agents differ in wealth taxes are proportional to income and are redistributed as equal lump sum transfers voting occurs every period and each consumer votes for the tax that maximizes his welfare we characterize time consistent markov perfect equilibria twofold first restricting utility classes we show that the economy s aggregate state is mean and median wealth second we derive the median voter s first order condition interpreting it as a tradeoff between distortions and net wealth transfers our method for solving the steady state relies on a polynomial expansion around the steady state

egalitarianism subsistence provision and work incentives in china s agricultural collectives abstract collective agriculture in china failed because its reward system was too egalitarian to provide sufficient work incentives to the peasants a popular view attributes egalitarianism to the difficulties of monitoring work effort in a team an alternative view presented here argues that a the egalitarian provision of basic foodgrains to peasant households reflected more generally the consumption problem of the peasantry who were impoverished by the state s policy of extracting agriculture and b as a remuneration system time rates better served the work and income sharing purpose than piece rates and therefore better protected households with high dependency ratios egalitarianism survives under the household farming system

growth and inequality revisited the role of primary distribution of income a new approach for understanding today s economic and social crises this paper presents an innovative interpretative scheme of the relationship between economic growth and income inequality taking the primary distribution of income between profits and wages as the main explanatory variable for that purpose two lines of research are taken as a reference point first the bhaduri marglin model which explains growth in terms of the effect that factor shares have on aggregate demand and second recent empirical analyses that also use the functional distribution to explain the evolution of the top income shares and the gini index after reviewing the literature on the growth inequality relationship the paper identifies several relationships between primary and interpersonal distributions of income in each of the bhaduri marglin model s growth regimes it finds multiple causal relationships between growth and inequality as well as inequality and growth clarifying their implications for economic and social stability the paper offers final reflections on the way the scheme can further the understanding of current economic and social crises

social divisions and institutions assessing institutional parameter variation this paper investigates the hypothesis that the association between property rights institutions and income is weaker in countries with high social divisions it argues that social divisions should have a negative effect on perceived institutional inclusiveness which in turn should depress institutional payoffs absent a property rights indicator that captures the perceived inclusiveness of institutions social divisions should then weaken the observed association between property rights institutions and income the empirical results support this hypothesis and highlight the importance of evaluating whether the institutions measure used captures the institutional framework applying to the population at large

the mystery of monogamy we examine why developed societies are monogamous while rich men through out history have typically practiced polygyny wealth inequality naturally pro duces multiple wives for rich men in a standard model of the marriage market however we demonstrate that higher female inequality in the marriage market reduces polygyny moreover we show that female inequality increases in the process of development as women are valued more for the quality of their chil dren than for the quantity consequently male inequality generates inequality in the number of wives per man in traditional societies but manifests itself as inequality in the quality of wives in developed societies jel j12 j16 j24 z13

income distribution borrowing constraints and redistributive policies this paper sheds light on the relationship between income inequality and redistributive policies and provides possible guidance in the specification of empirical tests of such a relationship we model a two period economy where capital markets are imperfect and agents vote over the level of taxation to finance redistributive policies that enhance future productivity in this context we show that the pivotal voter is not necessarily the agent class with median income in particular the poor who are more likely to be liquidity constrained may form a coalition with the rich and vote for low redistribution the effects of an increase in income inequality on the level of redistribution turn out to depend on whether the increase in inequality is concentrated among the poor or the middle class empirical results from a panel of 22 oecd countries provide preliminary evidence consistent with our main theoretical implications

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

inequality the politics of redistribution and the tax mix political economy literature generally predicts a positive relationship between income inequality and redistribution however there is no clear empirical evidence supporting such a relationship by incorporating an informal sector that evades income taxes we account for the tax base effect that along with the political channel determines the equilibrium redistribution and tax mix we find a non monotonic relationship between inequality and redistribution and explore under which conditions an unequal society relies more heavily on indirect taxes to finance redistribution ultimately this paper shows the limitations of the income tax to finance redistribution in developing countries even when taxes are democratically chosen

credit constraints inequality and the growth gains from trade abstract this paper tests the hypothesis that in the presence of credit constraints higher wealth inequality affects negatively the growth gains from trade liberalisation variations in the growth rate of value added decomposed in the growth rate of the number of establishments and the growth rate in average size of manufacturing industries in 34 developing countries before and after trade liberalisation are used to study the effects of inequality on the difference in growth under liberalised and nonliberalised regimes the results show that the number of firms in industries with high dependence on external finance in countries with higher inequality grow significantly slower in both statistical and economic terms than in industries with low dependence on external finance in countries with lower inequality following a trade liberalisation relative to the closed economy period

informality in the process of development and growth informality is a term used to describe the collection of firms workers and activities that operate outside the legal and regulatory systems it is widespread in the majority of developing countries in a typical developing economy the informal sector produces about 35 per cent of gdp and employs 70 per cent of the labour force this paper studies informality in the context of economic development by presenting a model and projections that link informality regulations migration and economic growth this analytical framework highlights the trade offs between formality and informality the relationship between the different types of informality and the connection between them and the forces of labour capital and productivity growth the paper models the behaviour of the informal sector based on the following fundamental asymmetry formal firms confront higher labour costs while informal firms face higher capital costs and lower productivity using mandated minimum wages as the policy induced distortion the model first studies the static allocation of formal and informal capital and labour in a modern economy second it opens the possibility of labour migration from a rudimentary economy with ample supply of labour e g rural areas or less advanced neighbouring countries third the model analyses the dynamic behaviour of the formal and informal sectors considering how they affect and are affected by economic growth and labour migration then the paper presents projections for the size of labour informality in the modern and rudimentary economies in the next two decades for a large group of countries representing all regions of the world the projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations

loss aversion in politics we study how loss aversion affects the political equilibrium in a simple majority voting model first we show a status quo bias which leads to path dependence second loss aversion implies a moderating effect on the most extreme voters third in a dynamic setting the effect of loss aversion diminishes with the length of the planning horizon of voters however in the presence of a projection bias majorities are partially unable to understand how fast they will adapt to a new policy this makes changes less likely and induces time inconsistency policy changes are timid at the beginning while in later periods they are made progressively more radical fourth in a stochastic environment loss aversion yields a significant distaste for risk but also a smaller attachment to the status quo the application of these results to a model of redistribution leads to empirically plausible implications

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

china in the world trade organization antidumping and safeguards china finds itself in a unique situation on antidumping and safeguard issues it is by far the main target of antidumping measures but so far one of the smallest users of such measures china s world trade organization wto accession protocol includes stringent antidumping and safeguard provisions that its trading partners may use against its exports the article examines three related concerns how quickly large developing economies can become intensive users of antidumping measures an evolution raising concerns about china s recent antidumping enforcement how china could minimize its exposure to foreign antidumping cases a recipe for both improving trade outcomes and for china s taking a leading role in reforming wto antidumping and the opportunities that the doha round of trade negotiations offer to china for negotiating stricter disciplines both on wto contingent protection and on the use by china s trading partners of the special provisions included in china s accession protocol

inequality and redistribution revisited abstract as inequality rises taxation can be less efficient in the sense that a given tax rate produces a smaller tax base if this tax base effect outweighs the conventional political effect then increasing inequality can induce less public spending or redistribution contrarily to alesina and rodrik and persson and tabellini

household inequality entrepreneurial dynamism and corporate financing economic theories provide conflicting hypotheses on how wealth inequality affects entrepreneurial dynamism to empirically investigate its impact we construct local measures of household wealth inequality based on financial rents home equity and 1880 farmland we identify its effects on entrepreneurship by instrumenting it with land distribution under the 1862 homestead act or us states removal of death taxes wealth inequality decreases firm entry and exit and the proportion of high tech businesses across metropolitan statistical areas there is also less redistribution into public goods supportive of entrepreneurship such as schooling and the judiciary income per capita consequently grows more slowly

who is afraid of political instability abstract an unstable macroeconomic environment is often regarded as detrimental to economic growth among the sources contributing to such instability much of the blame has been assigned to political issues this paper empirically tests for a causal and negative long run relation between political instability and economic growth but finds no evidence of such a relationship sensitivity analysis indicates that there is a contemporaneous negative relationship but also that in the long run and ignoring institutional factors the group of african countries plays the determining role

solving the mystery of the africa dummy abstract most empirical studies have reported a negative effect on growth of being an african country even when accounting for ethnic heterogeneity modeling policy choices has reduced this effect in recent studies but these have begged the question of why africa appears adverse to developmental policies this paper uses a cross sectional data set to show that the governments of arbitrary postcolonial states as are most african states face substantial limitations to their power and are constrained in their responses deriving greater relative power payoffs from neo patrimonial than from developmental policies differing levels of state legitimacy account therefore largely for the policy choices which characterize most of africa

induced institutional change or transaction costs the economic logic of land reallocations in chinese agriculture abstract the communal land rights system in china which combines individualised farming with periodic land reallocations provides a good case for testing the economic logic of land reallocations analysis of the results of a unique village survey reveals that a village s choice of land reallocation type partial or large in scale is significantly affected by transaction cost considerations which vary according to village topography and size rather than concerns for economic efficiency tenure security the latter of which is a proxy for the theory of induced institutional change more specifically villages with complex topographies tend to favour partial land reallocation whereas larger settlements tend to reallocate land more thoroughly

public education and pensions in democracy a political economy theory a dynamic political economy theory of scal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies the driving force of the model is the intergenerational conict over the allocation of the public budget successive generations of voters choose scal policies through repeated elections the political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities we characterize the markov perfect equilibrium of the voting game in a small open economy the equilibrium reproduces salient features of intergenerational