Each semester, the James M. and Cathleen D. Stone Wealth and Income Inequality Project provides support to a cohort of graduate students working - either independently or with a Professor of Economics - on questions of inequality, broadly defined.
Graduate Student Research
Ella Getz Wold will be using data from the Norwegian administrative tax records on capital income and wealth stocks. The data has some nice qualities: i) it is mostly reported by third parties; ii) it covers the entire population, including the very top of the income/wealth distribution; iii) it includes financial assets, business assets and housing assets (the latter for a shorter time period); and iv) it covers a 20+ year period (so some generational analysis is possible).
Felipe Brugues is working on a series of papers on trade in Ecuador. Ecuador is an open economy that depends heavily on the exports of commodities, and at the same time, possesses enough state capacity to have detailed information on owners, managers, workers, the structure of supply chains, and the performance of private firms. In the last decade, the country has experienced a large decrease in inequality, with the Gini coefficient falling from 54 in 2007 to 46 points in 2015, and a corresponding decrease in the income share of the top 1%. In one paper, Brugues and co-authors are examining the extent to which the decline in income inequality was driven by a series of trade shocks and a decrease in the international exposure of asset holdings of the wealthy. They are also constructing a simulation model to examine how trade policy affects inequality. In a second paper, Brugues is examining how contracts in supply chains, particularly between large and small firms, and similarly between firms and workers, reflect implicit insurance with respect to trade shocks. Such a phenomenon may explain the observed effect of shocks on inequality.
Violeta Gutkowski was supported in the first semester to work on a research paper examining the extent to which rising wage inequality has contributed to falling interest rates since the late 1980’s. The underlying idea is that because the marginal propensity to consume falls with income, higher inequality raises the supply of savings. Analyzing the issue quantitatively in the setting of overlapping generations models, she concluded that observed inequality was insufficient to account for most of the decline in interest rates. She also examined (but again, rejected) the possibility that increased uncertainty about the future wages at the horizon of generations could induce a rise in savings sufficient to have reduced interest rates.
Matteo Iudice worked as a research assistant to Professor Stelios Michalopoulos. Their project collected and harmonized data from population censuses in 24 sub-Saharan African countries to construct measures of educational inequality and intergenerational mobility across roughly 50 million respondents. They are currently exploring how inequality in education and political representation across ethnic groups in Africa shapes inter-group marriage patterns as well as the transmission of ethnic identity within ethnically mixed households.
Matthias Pellerin worked with Professor Andrew Foster on a project examining the role of sample weights in the measurement of economic mobility in the United States using the Panel Study of Income Dynamics. This is the only comprehensive nationally representative panel survey in the U.S. that connects origin and descendant households over a period of 40 years. The challenge with such survey data is that the descendants of a given set of households at one point in time are not necessarily representative of the population at a later date unless representative weights are used. But accurately calculating weights requires more information than is typically available from a survey. Existing weights are particularly problematic in cases of mixed-race couples and blended families. Pellerin and Foster are developing an alternative approach that allows for greater precision of estimates of mobility among this population. The Stone Center has been critical to the progress of this project, as it brings together a faculty member with strong substantive interests and experience with this type of a problem and a graduate student who sees himself primarily as an econometrician.
Jacob Robbins was supported in the fall of 2016 to focus full-time on research with Professor David Weil into how increased income inequality has translated into changes in savings rates and capital accumulation, and their potential impact on macroeconomic stability. On average, the rich save a larger proportion of their income and see larger wealth accumulation in their lifetime, whereas the middle class and poor spend more of their income or use credit. As the savings rate among the wealthy in the U.S. increases, interest rates are driven down. That could have large macroeconomic consequences and possibly lead to deeper, longer-lasting recessions, because the government fights recessions by lowering interest rates. With already low rates, it’s difficult to lower them significantly. The two research papers that came out of this work have been presented at top conferences, including the NBER Summer Institute and the Tsinghua Conference on Macroeconomics in Beijing. This is work which is co-authored with two other professors at Brown, Gauti Eggertsson and Neil Mehrotra. Based on this research, Robbins was awarded a fellowship from the Center for Equitable Growth, which supports research related to economic inequality.
Julia Tanndal worked on two projects at Brown. First, she finished a paper estimating the impact of financial market deregulation on top income shares. Using the synthetic control method to investigate the two ‘Big Bangs’ of financial deregulation, the U.K. in 1986 and Japan in 1997–99, she and her co-author found that pre-tax top income shares increased after both deregulation episodes. In the case of the U.K., where they could look at microdata on wages, evidence shows that higher earnings among financial sector employees appeared to be an important channel for this result.
Her second, ongoing project examines global wealth and tax evasion. Somewhere between $5.6 and $7 trillion of the world's wealth was hidden in tax havens in 2007. She is currently using documents leaked from the Panamanian law firm Mossak Fonseca (known as the “Panama Papers”) to trace the networks formed by shell companies. This will show how assets are kept and to which degree of anonymity they are covered, and the number and type of inter-jurisdictional links within a single network. This has direct implications for the degree of international cooperation necessary to identify tax evasion or criminal activities. This will also increase the understanding of how wealth at the global top is managed.
Amanda Loyola Heufemann to work for one semester as a research assistant to Professor Anna Aizer on a project entitled "The Black-White Wage Gap and Human Capital Investment." In this project, they plan to estimate how efforts to reduce labor market discrimination against African Americans affected schooling decisions of the next generation. In particular, they will exploit the June 1941 executive order, which prohibited discrimination by race in the federal government and in corporations that held federal contracts. Data from World War II expenditures and employment, broken down by location, industry, and occupation, will be matched with the Occupational Changes in a Generation surveys of 1962 and 1973 (extensions of the March CPSs of those years), which collect information on occupation, education, industry and income for males 18-64 years and the same information on their fathers and mothers.
Maor Milgrom is working on two projects. First, he is examining the long-term costs of being laid off from a shrinking industry in Israel, and how do these costs vary by ethnic group and geographic location. A key question is whether the costs are higher for workers displaced from low-tech manufacturing industries exposed to international trade. These shrinking industries are concentrated in rural areas of Israel which offer fewer employment opportunities, thus the displaced workers might be forced to switch industries or relocate to find employment. To answer these questions, he uses administrative data from the National Insurance Institute to track the earnings and employment history of Israeli workers. In a joint project with Diego Verdugo (who is also supported by the Stone Project), they use high quality administrate data from Chile to estimate spillover effects of the minimum wage, as well as its effects on employment and local prices.