Incentive Effects of Inheritances and Optimal Estate Taxation

By Wojciech Kopczuk

American Economic Review, May 2013

I consider optimal nonlinear taxation of income and bequests with a joy-of-giving bequest motive and explicitly characterize the optimal estate tax rate. The optimal formula trades off correction of externality from giving and discouraging effort of child...

The Estate Tax and Inter Vivos Transfers over Time

By Kathleen McGarry

American Economic Review, May 2013

The strong dislike evidenced by the American public towards the estate tax suggests that the wealthy wish to transfer resources to their heirs tax-free and would thus exploit mechanisms allowing them to reduce the tax burden whenever possible. However, I ...

Income and Substitution Effects of Estate Taxation

By James R. Hines Jr.

American Economic Review, May 2013

This paper evaluates the effect of estate taxes on labor supply. The analysis decomposes the effect of estate taxation into the substitution effect of relative price changes and the two income effects for which the estate tax is responsible. These two inc...

Estate Taxation with Altruism Heterogeneity

By Emmanuel Farhi and Iván Werning

American Economic Review, May 2013

We develop a theory of optimal estate taxation in a model where bequest inequality is driven by differences in parental altruism. We show that a wide range of results are possible, from positive taxes to subsidies. The results depend on redistributive obj...

Optimal Progressive Labor Income Taxation and Education Subsidies When Education Decisions and Intergenerational Transfers Are Endogenous

By Dirk Krueger and Alexander Ludwig

American Economic Review, May 2013

We quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation, borrowing constraints, income risk and incomplete financial markets. In addition to the distortions of l...

Optimal Pension Systems with Simple Instruments

By Mikhail Golosov, Ali Shourideh, Maxim Troshkin, and Aleh Tsyvinski

American Economic Review, May 2013

We analyze optimal pension systems relying on simple policy instruments in a lifecycle environment which admits endogenous decisions of how much to work as well as when to retire. The optimality in this context means the highest welfare that can be achie...

Some Basic Economics of National Security

By Kevin M. Murphy and Robert H. Topel

American Economic Review, May 2013

We define national security (NS) as public policies that protect the safety or welfare of a nation's citizens from substantial threats. NS capital provides societal insurance against widespread harm or catastrophe, so optimal NS investments may have very ...

Modest, Secure, and Informed: Successful Development in Conflict Zones

By Eli Berman, Joseph H. Felter, Jacob N. Shapiro, and Erin Troland

American Economic Review, May 2013

Most interpretations of prevalent counterinsurgency theory imply that increasing government services reduces rebel violence. Empirically, however, development programs and economic activity sometimes increase violence. Using new panel data on development ...

Insurgent Compensation: Evidence from Iraq

By Benjamin W. Bahney, Radha K. Iyengar, Patrick B. Johnston, Danielle F. Jung, Jacob N. Shapiro, and Howard J. Shatz

American Economic Review, May 2013

Participating in insurgency is physically risky. Why do people do so? Using new data on 3,799 payments to insurgent fighters by Al Qa'ida Iraq, we find that: (i) wages were extremely low relative to outside options, even compared to unskilled labor; (ii) ...

An Analysis of Economic Warfare

By Jeffrey Clemens

American Economic Review, May 2013

I develop a framework for assessing economic warfare, which describes efforts to undermine adversaries' sources of income. The ability to target adversarial market participants is a primary determinant of the success of such efforts, as is the elasticity ...

Genetic Diversity and the Origins of Cultural Fragmentation

By Quamrul Ashraf and Oded Galor

American Economic Review, May 2013

The origin of the uneven distribution of ethnic and cultural fragmentation across countries has been underexplored, despite the importance attributed to the effects of diversity on the stability and prosperity of nations. Building on the role of deeply-ro...

Social Organizations, Violence, and Modern Growth

By Avner Greif and Murat Iyigun

American Economic Review, May 2013

Social institutions were often founded by the elite to avoid social upheavals. Institutions helped mitigate the threat of violent social responses to labor-saving innovations. But their organizational forms were influenced by preexisting cultural and soci...

Not the Opium of the People: Income and Secularization in a Panel of Prussian Counties

By Sascha O. Becker and Ludger Woessmann

American Economic Review, May 2013

The interplay between religion and the economy has long occupied social scientists. We construct a unique panel of income and Protestant church attendance using 175 Prussian counties, presented in six waves from 1886 to 1911. The data reveal a marked decl...

From Stagnation to Sustained Growth: The Role of Female Empowerment

By Claude Diebolt and Faustine Perrin

American Economic Review, May 2013

This paper explores the role of gender equality over a long-run economic and demographic development path of industrialized countries. Our unified cliometric growth model of female empowerment suggests that changes in gender relations are a key ingredient...

Nonparametric Instrumental Variables Estimation

By Whitney K. Newey

American Economic Review, May 2013

In many economic models, objects of interest are functions which satisfy conditional moment restrictions. Economics does not restrict the functional form of these models, motivating nonparametric methods. In this paper we review identification results and...

What Do Instrumental Variable Models Deliver with Discrete Dependent Variables?

By Andrew Chesher and Adam M. Rosen

American Economic Review, May 2013

We compare nonparametric instrumental variables (IV) models with linear models and 2SLS methods when dependent variables are discrete. A 2SLS method can deliver a consistent estimator of a Local Average Treatment Effect but is not informative about other ...

Control Functions and Simultaneous Equations Methods

By Richard Blundell, Dennis Kristensen, and Rosa L. Matzkin

American Economic Review, May 2013

The control function approach is a convenient method of estimation in simultaneous equation systems. This requires that the system can be expressed in triangular form with variables satisfying a conditional mean independence restriction. Linear simultaneo...

What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting

By John Beshears, James J. Choi, Andreas Fuster, David Laibson, and Brigitte C. Madrian

American Economic Review, May 2013

Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-...

Estimating the Effect of Salience in Wholesale and Retail Car Markets

By Meghan R. Busse, Nicola Lacetera, Devin G. Pope, Jorge Silva-Risso, and Justin R. Sydnor

American Economic Review, May 2013

We investigate whether the first digit of an odometer reading is more salient to consumers than subsequent digits. We find that retail transaction prices and volumes of used vehicles drop discontinuously at 10,000-mile odometer thresholds, echoing effects...

Distinguishing Probability Weighting from Risk Misperceptions in Field Data

By Levon Barseghyan, Francesca Molinari, Ted O'Donoghue, and Joshua C. Teitelbaum

American Economic Review, May 2013

We outline a strategy for distinguishing rank-dependent probability weighting from systematic risk misperceptions in field data. Our strategy relies on singling out a field environment with two key properties: (i) the objects of choice are money lotteries...