How income mobility and income growth explain income inequality trends

Proposes a new approach capable of explaining concomitant changes in income inequality and income mobility. Introduction Income mobility and income inequality are two topics that have been the subject of extensive research. Although both topics are clearly related, building a bridge between them remains a challenging task. The aim of this paper is to propose a new approach capable of explaining concomitant changes in income inequality and income mobility. Building on Jenkins and Van Kerm (2006) — hereafter referred to as JVK — the new method establishes a direct link between income-rank mobility, the distribution of winners and losers (i.e. the distributional effect of income growth) and changes in inequality. The application to US data covering the period between 1970 and 2009 illustrates how this approach can bring new insights on the dynamics of income distribution.   The relationship between mobility and inequality can be hard to grasp. As Duval-Hernandezet al. (2014) point out even a Nobel Prize-winning economist may not understand how both inequality and mobility can increase over the same period. Yet, Hernandez et al. (2014, p1) indicate that it is not only possible but also common to find increases in inequality even though “when we follow the same people over time, those who earned the least to begin with gained more in dollars than those who started at the top of the earnings distribution.”   Partly, this apparent contradiction is due to the fact that “the very concept of income mobility is not well-defined” (Fields and Ok 1999, p557). In response a stream of the literature has proposed mobility measures that have a clear relationship with inequality measures. Shorrocks (1978) popularised the idea that mobility can be measured by the extent to which inequality is reduced by an extension of the income-accounting period (see, for example, Bayaz-Ozturk et al. 2014 and Kopczuk et al. 2010 for recent applications of Shorrocks’ approach to the US).   This type of mobility measures bears a clear relationship with inequality measures in that more mobility is always synonymous with less inequality. The trade-off, however, is that they have distanced themselves from the most intuitive definitions of mobility. JVK addresses this limitation in the special case of the widely used Gini index. By drawing on the income tax literature, they show that if mobility is simply defined as income reranking the only remaining factor that explains changes in inequality is the degree to which income growth (i.e., the panel-income changes) is more favour able to the poorer individuals than to the richer individuals.   This paper adopts the same mobility concept as in JVK to propose a new method capable of explaining why and how income growth may reduce inequality or, according to JVK, be ‘pro- poor’. The new method is particularly helpful to shed light on the relationship between income mobility and inequality. We depart from JVK by recognising that over any time period some individuals will see their income increase while others will experience an income loss, and yet other individuals may face no change. It follows that how the income growth process affects inequality depends on the respective size a nd distribution of the income gains and losses. Moreover, distinguishing income gains and losses is relevant from a social welfare perspective as there is evidence that people treat them differently.   One of the major new insights of the application to US data for the 1970/2009 period is that most of the equalising effect of income growth occurs through income gains rather than income losses, a finding that persists even in times of recession. Finally, income mobility shows no clear long-term pattern but it declined during the Great Recession, which is in contrast with previous recessions.   &nbsp

The Factor-Portfolios Approach to Asset Management using Genetic Algorithms

We present an investment process that: (i) decomposes securities into risk factors; (ii) allows for the construction of portfolios of assets that would selectively expose the manager to desired risk factors; (iii) perform a risk allocation between these portfolios, allowing for tracking error restrictions in the optimization process and (iv) give the flexibility to manage dinamically the transfer coeffficient (TC). The contribution of this article is to present an investment process that allows the asset manager to limit risk exposure to macro-factors - including expectations on correlation dynamics - whilst allowing for selective exposure to risk factors using mimicking portfolios that emulate the behaviour of given specific. An Artificial Intelligence (AI) optimisation technique is used for risk-budget allocation to factor-portfolios.Active Management, Portfolio Optimization, Genetic Algorithms, Propensities. Classification JEL: G11; G14; G32.

Agricultural Distortions, Poverty and Inequality in South Africa

South Africa has rapidly reduced trade barriers since the end of Apartheid, yet agricultural production and exports have remained sluggish. Also, poverty and unemployment have risen and become increasingly concentrated in rural areas. This paper examines the extent to which remaining price distortions, both domestic and foreign, are contributing to the underperformance of the agricultural sector vis-à-vis the rest of the economy. We draw on a computable general equilibrium (CGE) and micro-simulation model of South Africa that are linked to the results of a global trade model. This framework is used to examine the effects of eliminating global and domestic price distortions. Model results indicate that South Africa’s agricultural sector currently benefits from global price distortions, and that removing these would create more jobs for lower-skilled workers, thereby reducing income inequality and poverty. We also find that South Africa’s own policies are biased against agriculture and that removing domestic distortions would raise agricultural production. Job losses in nonagricultural sectors would be outweighed by job creation in agriculture, such that overall employment rises and poverty falls. Overall, our findings suggest that South Africa’s own policies are more damaging to its welfare, poverty and inequality than distortionary policies in the rest of the world. Existing national price distortions may thus explain some of the poor performance of South Africa’s agricultural sector and rural development.Distorted incentives, agricultural and trade policy reforms, national agricultural development, Agricultural and Food Policy, International Relations/Trade, F13, F14, Q17, Q18,

Parametric instability in periodically perturbed dynamos

We examine kinematic dynamo action driven by an axisymmetric large scale flow that is superimposed with an azimuthally propagating non-axisymmetric perturbation with a frequency $\omega$. Although we apply a rather simple large scale velocity field, our simulations exhibit a complex behavior with oscillating and azimuthally drifting eigenmodes as well as stationary regimes. Within these non-oscillating regimes we find parametric resonances characterized by a considerable enhancement of dynamo action and by a locking of the phase of the magnetic field to the pattern of the perturbation. We find an approximate fulfillment of the relationship between the resonant frequency $\omega_{\rm{res}}$ of the disturbed system and the eigenfrequency $\omega_0$ of the undisturbed system given by $\omega_{\rm{res}}=2\omega_0$ which is known from paradigmatic rotating mechanical systems and our prior study [Giesecke et al., Phys. Rev. E, 86, 066303 (2012)]. We find further -- broader -- regimes with weaker enhancement of the growth rates but without phase locking. However, this amplification regime arises only in case of a basic (i.e. unperturbed) state consisting of several different eigenmodes with rather close growth rates. Qualitatively, these observations can be explained in terms of a simple low dimensional model for the magnetic field amplitude that is derived using Floquet theory. The observed phenomena may be of fundamental importance in planetary dynamo models with the base flow being disturbed by periodic external forces like precession or tides and for the realization of dynamo action under laboratory conditions where imposed perturbations with the appropriate frequency might facilitate the occurrence of dynamo action.Comment: 25 pages, 19 Figures, minor corrections to match the published version published in Phys. Rev. Fluids 2, 053701 (2017

QR Factorization of Tall and Skinny Matrices in a Grid Computing Environment

Previous studies have reported that common dense linear algebra operations do not achieve speed up by using multiple geographical sites of a computational grid. Because such operations are the building blocks of most scientific applications, conventional supercomputers are still strongly predominant in high-performance computing and the use of grids for speeding up large-scale scientific problems is limited to applications exhibiting parallelism at a higher level. We have identified two performance bottlenecks in the distributed memory algorithms implemented in ScaLAPACK, a state-of-the-art dense linear algebra library. First, because ScaLAPACK assumes a homogeneous communication network, the implementations of ScaLAPACK algorithms lack locality in their communication pattern. Second, the number of messages sent in the ScaLAPACK algorithms is significantly greater than other algorithms that trade flops for communication. In this paper, we present a new approach for computing a QR factorization -- one of the main dense linear algebra kernels -- of tall and skinny matrices in a grid computing environment that overcomes these two bottlenecks. Our contribution is to articulate a recently proposed algorithm (Communication Avoiding QR) with a topology-aware middleware (QCG-OMPI) in order to confine intensive communications (ScaLAPACK calls) within the different geographical sites. An experimental study conducted on the Grid'5000 platform shows that the resulting performance increases linearly with the number of geographical sites on large-scale problems (and is in particular consistently higher than ScaLAPACK's).Comment: Accepted at IPDPS10. (IEEE International Parallel & Distributed Processing Symposium 2010 in Atlanta, GA, USA.

Comparing Welfare Change Measures withIncome Change Measures in Behavioural Policy Simulations

This paper presents a method of computing welfare changes (compensating and equivalent variations) arising from a tax or social security policy change, in the context of behavioural microsimulation modelling where individuals can choose between a limited number of discrete hours of work. The method allows fully for the nonlinearity of the budget constraint facing each individual, the probabilistic nature of the labour supply model and the presence of unobserved heterogeneity in the estimation of preference functions. An advantage of welfare measures, compared with changes in net incomes, is that they take into account the value of leisure and home production. The method is applied to hypothetical income tax policy changes in Australia and comparisons are made at the individual and the aggregate level. At the aggregate level a social welfare function is specified in terms of money metric utility. It is shown that policy evaluations based on welfare changes can be substantially different from those using only individuals' net income changes.Welfare change measures;equivalent variation; compensating variation; labour supplymodelling;nonlinear budget constraint

Tax Policy Design and The Role of a Tax-Free Threshold

This paper examines the role of the tax-free income tax threshold in a complex tax and transfer system consisting of a range of taxes and benefits, each with their own taper rates and thresholds. Considering a range of tax and benefit systems, particularly those having benefit taper rates whereby some benefits are received by income groups other than those at the bottom of the distribution, it is suggested that a tax-free threshold is not a necessary requirement to achieve redistribution. A policy change involving the elimination of the tax-free threshold in Australia and designed to achieve approximate revenue neutrality is examined using the Melbourne Institute Tax and Transfer Simulator. The results demonstrate that it is possible to eliminate the tax-free threshold under approximate overall revenue and distribution neutrality, but that labour supply incentives cannot be improved at the same time.

Abolishing the Tax-Free Threshold in Australia: Simulating AlternativeReforms

This paper examines the role of the tax-free income tax threshold in a complex tax and transfer system consisting of a range of taxes and benefits, each with their own taper rates and thresholds. Considering a tax and benefit system with benefit taper rates whereby some benefits are received by income groups other than those at the bottom of the distribution, it is suggested that a tax-free threshold is not a necessary requirement to achieve redistribution. Four alternative policy changes, each involving the elimination of the tax-free threshold in Australia and designed to achieve approximate revenue neutrality, were examined using the Melbourne Institute Tax and Transfer Simulator. A range of implications were examined, including labour supply responses to tax changes, and the effects of policy changes on inequality and social welfare. The results demonstrate that it is possible to eliminate the tax-free threshold under approximate overall revenue and distribution neutrality, but that it is impossible to improve labour supply incentives at the same time. In order to achieve improved incentives, either revenue or distribution neutrality has to be sacrificed.