Intergenerational mobility in Australia

Combining four surveys conducted over a forty year period, I calculate intergenerational earnings elasticities for Australia, using predicted earnings in parents' occupations as a proxy for actual parental earnings. In the most recent survey, the elasticity of sons' wages with respect to fathers' wages is around 0.2. Comparing this estimate with earlier surveys, I find little evidence that intergenerational mobility in Australia has significantly risen or fallen over time. Applying the same methodology to United States data, I find that Australian society exhibits more intergenerational mobility than the United States. My method appears to slightly overstate the degree of intergenerational mobility; if the true intergenerational earnings elasticity in the United States is 0.4–0.6 (as recent studies have suggested), then the intergenerational earnings elasticity in Australia is probably around 0.2–0.3

Trust, Inequality, and Ethnic Heterogeneity

Using a large Australian social survey, combined with precise data on neighbourhood characteristics, I explore the factors that affect trust at a local level (‘localised trust’) and at a national level (‘generalised trust’). Trust is positively associated with the respondent’s education, and negatively associated with the amount of time spent commuting. At a neighbourhood level, trust is higher in affluent areas, and lower in ethnically and linguistically heterogeneous communities, with the effect being stronger for linguistic heterogeneity than ethnic heterogeneity. Linguistic heterogeneity reduces localised trust for both natives and immigrants, and reduces generalised trust only for immigrants. Instrumental variables specifications show similar results. By contrast with the United States, there is no apparent relationship between trust and inequality across neighbourhoods in Australia.Trust, social capital, income distribution, immigration, ethnicity

Estimating the Impact of Gubernatorial Partisanship on Policy Settings and Economic Outcomes: A Regression Discontinuity Approach

Using panel data from US states over the period 1941-2002, I measure the impact of gubernatorial partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrat and Republican Governors. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower posttax inequality, and lower unemployment rates. However, for 26 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in tax rates, welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner.median voter theorem, partisanship, state government, taxation, expenditure, welfare, crime, growth

What’s the Difference Between a Donkey and an Elephant? Using Panel Data from US States to Estimate the Impact of Partisanship on Policy Settings and Economic Outcomes

Using panel data from US states, I measure the impact of partisanship on a wide range of different policy settings and economic outcomes. Across 32 measures, there are surprisingly few differences in policy settings, social outcomes and economic outcomes under Democrats and Republicans. In terms of policies, Democratic Governors tend to prefer slightly higher minimum wages and more redistributive taxes. Under Republican Governors, incarceration rates are higher, while welfare caseloads are higher under Democratic Governors. In terms of social and economic outcomes, Democratic Governors tend to preside over higher median post-tax income, lower post-tax inequality, and lower unemployment rates. However, for 25 of the 32 dependent variables, gubernatorial partisanship does not have a statistically significant impact on policy outcomes and social welfare. I find no evidence of gubernatorial partisan differences in welfare generosity, the number of government employees or their salaries, state revenue, incarceration rates, execution rates, pre-tax incomes and inequality, crime rates, suicide rates, and test scores. These results are robust to the use of regression discontinuity estimation, to take account of the possibility of reverse causality. Overall, it seems that Governors behave in a fairly non-ideological manner.median voter theorem, partisanship, state government, taxation, expenditure, welfare, crime, growth

Does Raising the Minimum Wage Help the Poor?

What is the impact of raising the minimum wage on family incomes? Analysing the characteristics of low wage workers, I find that those who earn near-minimum wages are disproportionately female, unmarried and young, without post-school qualifications and overseas born. About one-third of near-minimum wage workers are the sole worker in their household. Due to low labour force participation rates in the poorest households, minimum wage workers are most likely to be in middle-income households. Using various plausible parameters for the effect of minimum wages on hourly wages and employment, I estimate the impact of a minimum wage rise on inequality.Minimum wages, employment, wages, earnings, income distribution

Estimating Teacher Effectiveness From Two-Year Changes in Students’ Test Scores

Using a dataset covering over 10,000 Australian primary school teachers and over 90,000 pupils, I estimate how effective teachers are in raising students’ test scores from one exam to the next. Since the exams are conducted only every two years, it is necessary to take account of the teacher’s work in the intervening year. Even after adjusting for measurement error, the resulting teacher fixed effects are widely dispersed across teachers, and there is a strong positive correlation between a teacher’s gains in literacy and numeracy. Teacher fixed effects show a significant association with some, though not all, observable teacher characteristics. Experience has the strongest effect, with a large effect in the early years of a teacher’s career. Female teachers do better at teaching literacy. Teachers with a master’s degree or some other form of further qualification do not appear to achieve significantly larger test score gains. Overall, teacher characteristics found in the departmental payroll database can explain only a small fraction of the variance in teacher performance.educational economics, educational finance, efficiency, productivity

Deriving Long-Run Inequality Series from Tax Data

Prior to the last three decades, regular surveys on household income were rare or non-existent in many developed countries, making it difficult for economists to develop long-run series on income distribution. Using taxation statistics, which tend to be available over a longer time span, I propose a method for imputing the incomes of non-taxpayers, and deriving the underlying distribution of income. Because taxation statistics are typically disaggregated by gender, it is possible to derive separate income distribution series for men and women in countries where individuals file separately. I show that over the past four decades, the distribution of adult male incomes is a good proxy for the distribution of family incomes. Applying this method to Australia, I develop a new annual series for inequality from 1942-2000. Inequality fell in the 1950s and the 1970s, and rose during the 1980s and 1990s – a pattern similar to the United Kingdom.income distribution, imputation, tax progressivity, Australia

Precipitation, Profits, and Pile-Ups

In considering the economic impacts of climatic changes, economists frequently use annual national income as a proxy for social welfare. I show that such studies suffer from a significant bias, arising from the fact that such models typically ignore changes in mortality rates. Using panel data from Australia, I show that rainfall lowers traffic deaths, suggesting that the standard approach may underestimate the true economic cost of droughts.national income; social welfare; rainfall; traffic fatalities

Can Redistributive State Taxes Reduce Inequality?

Do income taxes levied at a state or regional level affect the after-tax distribution of income? Or do workers merely move between regions, causing pre-tax wages to adjust? This question is relevant both in across states in the United States, and across countries within the European Union. Using the full income tax parameters for all US states from 1977-2002, I create a “simulated tax redistribution index”, which captures the mechanical impact of the changes in tax policy on the gini coefficient, but is exogenous to any behavioral response. Analyzing the effect of this redistribution index on inequality, I find that gross wages do not adjust so as to fully offset the effect of more redistributive taxes. Exploring the adjustment process further, I create a new class of tax redistribution measures, based on the S-Gini, which differentially weight effects at the bottom and top of the distribution, and conclude that neither taxes that particularly affect the rich or the poor seem to affect the distribution of wages. Redistributive taxes do not appear to affect interstate migration or total state personal income. From a political economy perspective, I also find some evidence that more inequality leads states to implement more redistributive taxes, which may help explain why earlier studies observed a positive relationship between redistribution and inequality.taxation, redistribution, progressivity, inequality, income distribution, Gini index, S-Gini index, interstate migration

Optimal Design of Earned Income Tax Credits: Evidence from a British Natural Experiment

With many countries considering the adoption of a system of earned income tax credits, it is useful to analyze how different types of credits affect labor supply and earnings. This paper focuses on a 1999 reform to the UK tax credit system, which increased the value of the credit and reduced the phase-out rate. Using panel data, with individual fixed effects, I compare eligibles and ineligibles within five groups: all individuals; those whose demographic characteristics predict that they will have low earnings; single women; women in couples; and men in couples. Over a 15-month period, boosting the credit appears to have raised the labor participation rates, hours, and earnings of those who were eligible to receive it.working families’ tax credit, earned income tax credit, wage subsidies, labor supply, earnings, self-reported health status