Macroeconomic Policy and Distributional Conflict

Paper Session

Sunday, Jan. 8, 2017 10:15 AM – 12:15 PM

Swissotel Chicago, Monte Rosa
Hosted By: Union for Radical Political Economics
  • Chair: Markus Schneider, University of Denver

Changes in the Profile of Inequality Across Europe Since 2005: Austerity and Redistribution

Markus Schneider
,
University of Denver
Stephen Kinsella
,
University of Limerick
Antoine Godin
,
Kingston University

Abstract

The dual objectives of this paper are to present two inequality indices that provide a more nuanced picture of how the profile of inequality changed across European countries since 2005, and to use these indices to analyze the distributional changes that can be attributed to the push for austerity. We estimate the JV-indices for inequality at the top and the bottom for 24 European countries over 9 years. We then use this panel to understand the distributional effects of the fiscal consolidation policies Europe endured after the 2008 crisis. We find austerity deepened income inequality in Eurozone countries, but reduced income inequality in countries that do not use the euro as their currency. We uncover a significant new relationship between austerity policy and the tails of the income distribution, further suggesting that these policies on average amount to a redistribution from the bottom to the top.

Distributive Conflict, Growth, and the Entrepreneurial State

Daniele Tavani
,
Colorado State University-Fort Collins
Luca Zamparelli
,
Sapienza University of Rome

Abstract

In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) growth cycle model. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) invest in publicly funded research, which augments labor productivity growth. We first focus on a special case in which labor productivity growth depends entirely on public research, and show that: (i) there exists a tax rate that maximizes the long-run labor share, but not a growth-maximizing tax rate; (ii) the long-run labor share is always increasing in the share of public spending in infrastructure, and (iii) the presence of public R&D is not enough to stabilize the distributive conflict. We then study a more general model with induced technical change where, as is well known in the literature, the distributive conflict is resolved in the long run. With induced technical change: (iv) the labor share-maximizing tax rate is the same as in the special case; (v) the long-run share of labor is always increasing in the share of public spending in infrastructure, and (vi) maximizing growth requires to levy a tax rate in excess of the labor-share maximizing value.

Wealth Concentration, Income Distribution, and Alternatives for the United States

Armon Rezai
,
Vienna University of Economics and Business
Lance Taylor
,
New School
Ozlem Omer
,
New School

Abstract

US household wealth concentration is not likely to decline in response to fiscal interventions alone. Creation of an independent public wealth fund could lead to greater equality. Similarly, once-off tax/transfer packages or wage increases will not reduce income inequality significantly; on-going wage increases in excess of productivity growth would be needed. These results come from the accounting in a simulation model based on national income and financial data. The theory behind the model borrows from ideas that originated in Cambridge UK (especially from Luigi Pasinetti and Richard Goodwin).
Discussant(s)
Devin Rafferty
,
University of Missouri-Kansas City
Firat Demir
,
University of Oklahoma
OzgUr Orhangazi
,
Kadir Has University
Leila Davis
,
Middlebury College
JEL Classifications
  • E1 - General Aggregative Models