We examine the impact of balanced-budget labor income taxes on the existence of expectation-driven business cycles in a two-sector version of the Schmitt-Grohé and Uribe (SGU) [(1997) Journal of Political Economy 105, 976–1000] model with constant government expenditures and counter-cyclical taxes. Our results show that the destabilizing impact of labor income taxes strongly depends on the capital intensity difference across sectors. Local indeterminacy is indeed more likely when the consumption good sector is capital intensive, as the minimal tax rate decreases, and less likely when the investment good sector is capital intensive, as the minimal tax rate increases. The implication of this result can be quantitatively significant. Indeed, when compared to SGU, local indeterminacy can be either completely ruled out for all OECD countries when the investment good is sufficiently capital intensive or drastically improved, delivering indeterminacy for a larger set of OECD countries, if the consumption good is sufficiently capital intensive. Focusing however on recent estimates of the sectoral capital shares corresponding to the empirically plausible case of a capital intensive consumption good, we find that there is a significant increase of the range of economically relevant labor tax rates (from a minimum tax rate of 30% to 24.7%) for which local indeterminacy arises with respect to the aggregate formulation of SGU.
Historically and in many parts of the developing world, ethnic minorities have played a central role in the economy. Examples include Chinese throughout Southeast Asia, Indians in East Africa, and Jews in medieval Europe. These rich minorities are often subject to popular violence and extortion, and are treated ambiguously by local politicians. We analyze the impact of the presence of a rich ethnic minority on violence and on interactions between a rent-seeking local elite and a poor majority. We find that the local elite can always make use of the rich minority to maintain its hold on power. When the threat of violence is high, the government may change its economic policies strategically to sacrifice the minority to popular resentment. We investigate the conditions under which such instrumental scapegoating emerges, and the forms it takes. We then introduce some social integration capturing, for instance, mixed marriages and shared education. Social integration reduces violence and yields qualitative changes in economic policies. Overall, our results help explain documented patterns of violence and segregation.
We study infinitely repeated games in which players are limited to subsets of their action space at each stage—a generalization of asynchronous games. This framework is broad enough to model many real-life repeated scenarios with restrictions, such as portfolio management, learning by doing and training. We present conditions under which rigidity in the choice of actions benefits all players in terms of worst-case equilibrium payoff and worst-case payoff. To provide structure, we exemplify our result in a model of a two-player repeated game, where we derive a formula for the worst-case payoff. Moreover, we show that in zero-sum games, lack of knowledge about the timing of the revision can compensate for inability to change the action.
Our analysis of US state-level data on an annual frequency, from 1976 to 2008, sheds new light on a plausible causal link between infrastructure investments, namely public spending on highways, and income inequality. This causal relationship is drawn out using the number of seats in the US House of Representatives Committee on Appropriations (HRCA) as an instrument to identify quasi-random variations in state-level spending on highways. An exogenous pattern which emerges when a state gains an additional member to the HRCA is that it is allocated with new federal grants. This increase in federal transfers for infrastructure financing results in slashing of expenditures on highways and a crowding-out effect of federal funding for state investments on highways. Spending cuts on highways produced by a new HRCA member being attained by a state can unwittingly cause income inequality to rise over a short 2-year time horizon. Similar challenges with decentralized development to finance infrastructure via federal transfers to state and sub-national governments may be encountered by other industrially advanced, emerging and low-income developing economies. US data over the mentioned period reveal a strong positive correlation with state spending on highways and wages paid for construction jobs. Suggestive evidence indicates that the construction sector also plays an important role in the transmission channel from a rise in state spending on highways to lowering income inequality, albeit during specific intervals, as opposed to on a long-term basis.
The liberated company—a company where employees are fully autonomous and accountable for the decisions they take—is a concept about which much has been said and written. Some observers portray it as a major managerial innovation and even as a fully-fledged organizational model for the future. Yet, despite constituting an interesting attempt to address issues related to the changing values and expectations of employees at work, the concept seems more cosmetic than something that will have a significant managerial effect. A clearly better approach is to ask what role managers should adopt, rather than fomenting the idea that the need for management is on the cusp of disappearing altogether. Adopting a more anthropological vision of the company, we suggest instead that a conceptual revision informed by a postmodern reading of this issue, suggests a new way of rethinking managerial attitudes. The main idea here being to no longer try and liberate companies, but instead to lay the foundations so that they themselves become liberating.
In this paper, we consider an abstract optimal control problem with state constraint. The methodology relies on the employment of the classical dynamic programming tool considered in the infinite dimensional context. We are able to identify a closed-form solution to the induced Hamilton-Jacobi-Bellman (HJB) equation in infinite dimension and to prove a verification theorem, also providing the optimal control in closed loop form. The abstract problem can be seen an abstract formulation of a PDE optimal control problem and is motivated by an economic application in the context of continuous spatiotemporal growth models with capital di usion, where a social planner chooses the optimal location of economic activity across space by maximization of an utilitarian social welfare function. From the economic point of view, we generalize previous works by considering a continuum of social welfare functions ranging from Benthamite to Millian functions. We prove that the Benthamite case is the unique case for which the optimal stationary detrended consumption spatial distribution is uniform. Interestingly enough, we also find that as the social welfare function gets closer to the Millian case, the optimal spatiotemporal dynamics amplify the typical neoclassical dilution population size effect, even in the long-run.
I develop a model of activism and polarization in the context of electoral competition. Two candidates simultaneously announce policy platforms and seek the support of ideologically inclined activists. Activists compete to influence electoral outcomes by expending costly support for their respective candidates. The presence of activists always moderates the platform choice of candidates, compared to the case of no activism. The central finding of the paper is that the relationship between partisanship of activists and polarization isambiguous. As activists become increasingly partisan, polarization of candidate platforms reduces or widens depending on the costs of activism. I present normative conditions under which the presence of activism and increased partisanship among activists are both welfare-improving for voters. Finally, introducing a public funding option for candidates increases polarization in the political process.
There is an urgent need to measure the impacts of COVID-19 among gay men and other men who have sex with men (MSM). We conducted a cross-sectional survey with a global sample of gay men and other MSM (n = 2732) from April 16, 2020 to May 4, 2020, through a social networking app. We characterized the economic, mental health, HIV prevention and HIV treatment impacts of COVID-19 and the COVID-19 response, and examined whether sub-groups of our study population are disproportionately impacted by COVID-19. Many gay men and other MSM not only reported economic and mental health consequences, but also interruptions to HIV prevention and testing, and HIV care and treatment services. These consequences were significantly greater among people living with HIV, racial/ethnic minorities, immigrants, sex workers, and socio-economically disadvantaged groups. These findings highlight the urgent need to mitigate the negative impacts of COVID-19 among gay men and other MSM.
City size distributions are not strictly Pareto, but upper tails are rather Pareto like (i.e. tails are regularly varying). We examine the properties of the tail exponent estimator obtained from ordinary least squares (OLS) rank size regressions (Zipf regressions for short), the most popular empirical strategy among urban economists. The estimator is then biased towards Zipf's law in the leading class of distributions. The Pareto quantile-quantile plot is shown to offer a simple diagnostic device to detect such distortions and should be used in conjunction with the regression residuals to select the anchor point of the OLS regression in a data-dependent manner. Applying these updated methods to some well-known data sets for the largest cities, Zipf's law is now rejected in several cases.
Many countries are reallocating tasks and powers to more central levels of government. To identify centralization’s welfare effects, I use a difference-in-differences design that relies on time and cross-cantonal variation in the implementation of centralization reforms in Switzerland. I find that centralization provokes significant decreases in residents’ life satisfaction. I identify one mechanism driving the effect, namely the procedural disutility that individuals experience from having less influence over the formulation of political decisions. This effect is largest among individuals with higher expected benefits from being involved in the political decision process, with detrimental effects on local political participation.