Small countries are more right wing

Over the past decade or so, there has been a trend for European countries to drift toward the right on the political spectrum. Even nominally leftist governments have positive views of lean governments and austerity talk. Why this? I doubt this is because suddenly the United States has become a shining example. There is something more fundamental at work.

Franto Ricka thinks it has all to do with increased tax competition. This became more prominent with the expansion from EU-15 to EU-25 around 2004, where a series of relatively small countries joined the union. Smaller countries have an interest of playing tough in tax competition, especially for capital tax rates, as they can increase revenue by lowering taxes. And this puts pressure on the larger ones. Thus, even though political preferences have not changed, political outcomes have become more right wing as Europe expanded, and voters elected as well more politicians from the right.

How econophysics describes the income distribution

It has been a while since I last discussed a paper from econophysics, where it appears there is a substantial literature trying to describe the distribution of income. It turns out to be quite difficult, because the goal is to do this with a single equation. What one would want to do with that equation is not clear to me, but anyway.

Maciej Jagielski and Ryszard Kutner claim success with this endeavor by essentially dividing up the distribution in three parts, fitting each to a different distribution function, and then rejoining them into a single equation. But what income are they taking about, you may ask? They look at European income in 2006 and 2008, and take the data from the SILC EU project. That still does not determine what income they are considering, as the dataset allows multiple different ways to define income. It is not even clear whether this is income before or after taxes and whether it includes capital gains.

One problem the authors realized is that they need oversampling for to incomes. To take care of this, they look at the European billionaires on the Forbes list of the richest people over several years, conclude that changes in wealth must be "income" and take that, dropping all negative incomes along the way. Then they notice a large discontinuity from merging the two dataset and decide to divide the top incomes by 100 to make the joint distribution continuous. Oh boy. And this is the dataset they used for their study, believe it or not.

When kids are impatient: subsidize their savings

I do not have scientific evidence for that, but my observation is that children are very impatient, and they become more patient with age. That is rather paradoxical, as children have all their life to do things, while older people have a shorter horizon. Maybe patience is acquired, and the environment you live in conditions you to learn about patience. Some may call this learning to control deep instincts.

Nicola Pavoni and Hakki Yazici assumes that people have self-control issues regarding impatience, and that these issues vanish with age. Then how can one get the efficient allocation of savings through the life cycle? It should be no surprise that this comes with subsidies for savings, and those decrease with age. I would add that if savings is learned from experience, then the subsidy would be even higher very early on. And this is already happening, with banks offering to children savings accounts with particularly high interest rates.

An Econ Conference for Undergrads

In April at Georgetown.  Click through if you might be interested.

Congratulations to Jim Stock

President Obama has appointed my Harvard colleague Jim Stock to be a member of the Council of Economic Advisers.

Summer School in Economic Theory

Grad students in economics can click here to learn about 2013 Jerusalem Summer School in Economic Theory. It is ten-day program run by my Harvard colleague Eric Maskin.

Gender discrimination on the labor market in China

China is a country of contradictions. While its communist ideals dictate that all people are equal, genders are quite obviously treated differently. The country's leadership is more male-based than most (23 of 25 in the politburo) and parents routinely practice gender selection for their children, which leads to the ticking bomb of a large male population surplus (more here). Is such discrimination also practiced on the labor market in China?

Xiangyi Zhou, Jie Zhang and Xuetao Song went through the trouble of sending about 20,000 fake employment applications on various major Internet bulletin boards and analyzed the responses they got. The results are damning. There is signification discrimination, but in surprising ways. State-owned enterprises tend to prefer males. Foreign and private firms go the other way and tend to prefer females. The public sector is rigid and follows rules, so it seems deeply ingrained to privilege men despite all the rhetoric. The private sector is more flexible and, I suppose, takes opportunities where they are, and hiring discriminated women seems to be the way to go. On more lesson on how free markets can be powerful adjusters.