Originally published in Economic Journal, 129 Issue 618 (February), 790–820. https://doi.org/10.1111/ecoj.12561
AbstractThis study reconstructs Spain’s national wealth from 1900 to 2017. By combining new sources with existing accounts, we estimate the wealth of both private and government sectors and use a new asset-specific decomposition of the long-run accumulation of wealth. We find that, during the twentieth century, the national wealth-to-income ratio remained within a relatively narrow range—between 400% and 600%—until the housing boom of the early 2000s led to an unprecedented rise to 800% in 2007. Our results highlight the importance of land, housing capital gains and international capital flows as key elements of wealth accumulation.
AbstractThis paper provides an explanation for situations in which the fundamental state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth—individuals’ perceived wealth that is derived from expectations of gains in bets arising from heterogeneous expectations. This wealth is divorced from society's real assets. The creation of a market for bets necessarily generates positive pseudo-wealth. Changes in the magnitude of differences of prior beliefs will lead to changes in expected wealth and hence to changes in consumption, implying instability in aggregate and individual consumption and ex post intertemporal consumption misallocations. Moreover, ‘completing markets’ through the creation of a new market for bets can increase individual and aggregate risk. With a utilitarian social welfare function, completing markets leads to lower welfare ex post, but the first theorem of welfare economics (evaluating each individual's well-being on the basis of her ex ante beliefs) still holds, raising unsettling questions for welfare analysis. We also show that if the planner uses beliefs that are consistent, then the betting equilibrium would be Pareto inferior.
AbstractUsing a compiled data set of 441 censuses and surveys from between 1787 and 2015, representing 103 countries and 51.4 million mothers, we find that: (i) the effect of fertility on labour supply is typically indistinguishable from zero at low levels of development and large and negative at higher levels of development, (ii) the negative gradient is stable across historical and contemporary data, and (iii) the results are robust to identification strategies, model specification, and data construction and scaling. Our results are consistent with changes in the sectoral and occupational structure of female jobs and a standard labour–leisure model.
AbstractIt is notoriously difficult to identify peer effects within the family. Using administrative data on children from both Florida and Denmark, the paper examines the effects of having a disabled younger sibling. To address the identification challenge, the paper compares the differential effects for first- and second-born children in three-plus-child families, taking advantage of the fact that birth order influences the amount of time that a child spends in early childhood with their younger siblings, disabled or not. The paper finds evidence that, relative to the first born, the second child in a family is differentially affected when the third child is disabled.
AbstractWe study corporate real estate frictions and their effect on firm dynamics and labour demand. We build and simulate a general equilibrium model with heterogeneous firms that predicts the response of firms to a productivity shock in the presence of fixed adjustment costs on real estate. Using a large firm-level database merged with local real estate prices, we then exploit variations in the tax on capital gains to document a causal effect of adjustment costs on firms’ labour demand and derive new results on the causes and implications of firms’ local relocation.
AbstractThis is the first article to study the interaction between labour markets and endogenous referral networks in the context of worker heterogeneity. In equilibrium the structure of the referral network is hierarchical, which is different from the usual assumption of homophily but is consistent with the evidence. Hierarchy exacerbates inequality. The welfare effects of the use of referrals are subtle and depend on the nature of heterogeneity. If heterogeneity is due to productivity differences, referrals improve welfare. If workers face the different probability of forming a match despite having the same productivity, as in the case of discrimination, referrals reduce welfare.
AbstractThis article introduces a framework to study parental investments in the presence of birth order preferences and/or human capital cost differentials across children. The framework yields canonical models as special cases and delivers sharp testable predictions concerning how parental investments respond to an exogenous change in family size in the presence of birth order effects. These predictions characterize a generalised quantity–quality trade-off. Danish administrative data confirm our theory’s predictions. We find that for any given parity, the human capital profile of children in smaller families dominates that of large families, and that the average child’s education decreases as family size increases, even after taking birth order effects into consideration.
AbstractAfter a recent increase in Chinese import competition, European firms increased innovation. We present and rationalise these patterns using ‘trapped factors’ at the micro level within a stylised equilibrium model of product-cycle trade and growth. Trade integration of the magnitude observed between the OECD and low-wage nations as a whole can considerably increase the long-run growth rate and welfare. In the short run exposed firms devote trapped factors to increased innovation, leading both to increased innovation at these individual firms as well as to a small amount of extra transitional growth overall. China accounts for half of the dynamic trade gains.
AbstractMobile phones promise to bring the ICT revolution to previously unconnected populations. A two-year study evaluates an innovative voice-based ICT advisory service for smallholder cotton farmers in India, demonstrating significant demand for, and trust in, new information. Farmers substantially alter their sources of information and consistently adopt inputs for cotton farming recommended by the service. Willingness to pay is, on average, less than the per-farmer cost of operating the service for our study, but likely exceeds the cost at scale. We do not find systematic evidence of gains in yields or profitability, suggesting the need for further research.
AbstractThis paper extends the analysis of the wealth–income ratio based on the neoclassical model in a Schumpeterian growth framework in which savings are channelled to both tangible and intangible capital investment. Using historical data for 21 OECD countries over the period 1860–2015, we find that the wealth–income ratio and, hence, wealth inequality, is negatively related to the rate of economic growth and positively related to the rates of investment in intangible and tangible assets, as predicted by the theory. Accounting for the innovation-induced counteracting growth effect on the wealth–income ratio, we show that the net effect of investment in intangibles on wealth inequality is positive. Our estimates suggest that intangibles have been a contributing factor in wealth inequality since 1860 and that the marked increase in the investment in intangible assets in the post–WWII period has been a significant driver of wealth inequality since the 1970s.
AbstractWe analyse the political economy of the public provision of private goods when individuals care about their social status. Status concerns motivate richer individuals to vote for the public provision of goods they themselves buy in markets: a higher provision level attracts more individuals to the public sector, enhancing the social exclusivity of market purchases. Majority voting may lead to a public provision that only a minority of citizens use. Users in the public sector may enjoy better provision than users in the private system. We characterise the coalitions that can prevail in a political equilibrium.
AbstractIn this article, we study the labour supply effects and the redistributional consequences of the US social security system. We focus particularly on auxiliary benefits, where eligibility is linked to marital status. To this end, we develop a dynamic, structural life cycle model of singles and couples, featuring uncertain marital status and survival. We account for the socio-economic gradients to both marriage stability and life expectancy. We find that auxiliary benefits have a large depressing effect on married women’s employment. Moreover, we show that a revenue neutral minimum benefit scheme would moderately reduce inequality relative to the current US system.
AbstractFiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was a key driver pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland and Hungary (GAPH) suffered from frequent uncertainty shocks—and correspondingly high levels of uncertainty—caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterwards in GAPH, but this effect was absent or much more limited for other European countries.
AbstractWe present evidence that farmers adjust agricultural inputs in response to within-season temperature variation, undertaking defensive investments to reduce the adverse agro-ecological impacts of warmer temperatures. Using panel data from Kenyan maize-growing households, we find that higher temperatures early in the growing season increase the use of pesticides, while reducing fertiliser use. Warmer temperatures throughout the season increase weeding effort. These adjustments arise because greater heat increases the incidence of pests, crop diseases and weeds, compelling farmers to divert investment from productivity-enhancing technologies such as fertiliser to adaptive, loss-reducing, defensive inputs such as pesticides and weeding labour.