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Thursday, November 13, 2014

Fall 2014 Journal of Economic Perspectives

One of my hobbies is blogging as the Conversable Economist. But my actual paid job since 1986 has been Managing Editor of the Journal of Economic Perspectives. The journal is published by the American Economic Association, which several years back made the decision--much to my delight--that the journal wouuld be freely available on-line, from the current issue back to the first issue in 1987. The journal's website is here, and this is the Table of Contents for the Fall 2014 issue, with direct links to the papers. I will include the abstracts below, and will probably blog about some of the individual papers in the next week or two, as well.

Symposium: Social Networks
"Networks in the Understanding of Economic Behaviors," by Matthew O. Jackson
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"From Micro to Macro via Production Networks," by Vasco M. Carvalho
Full-Text Access
"Community Networks and the Process of Development," by Kaivan Munshi
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Symposium: Tax Enforcement and Compliance
"How Can Scandinavians Tax So Much?" by Henrik Jacobsen Kleven
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"Why Do Developing Countries Tax So Little?" by Timothy Besley and Torsten Persson
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"Taxing across Borders: Tracking Personal Wealth and Corporate Profits," by Gabriel Zucman
Full-Text Access
"Tax Morale," by Erzo F. P. Luttmer and Monica Singhal
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Articles
"The Economics of Guilds," by Sheilagh Ogilvie
Full-Text Access
"The Wages of Sinistrality: Handedness, Brain Structure, and Human Capital Accumulation," by Joshua Goodman
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Features

"Retrospectives: The Cold-War Origins of the Value of Statistical Life," by H. Spencer Banzhaf
Full-Text Access
"Recommendations for Further Reading," by Timothy Taylor
Full-Text Access
Correspondence: "The Missing Middle," by James Tybout
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Abstracts for the Fall 2014 Journal of Economic Perspectives 

"Networks in the Understanding of Economic Behaviors"
Matthew O. Jackson
As economists endeavor to build better models of human behavior, they cannot ignore that humans are fundamentally a social species with interaction patterns that shape their behaviors. People's opinions, which products they buy, whether they invest in education, become criminals, and so forth, are all influenced by friends and acquaintances. Ultimately, the full network of relationships- how dense it is, whether some groups are segregated, who sits in central positions- affects how information spreads and how people behave. Increased availability of data coupled with increased computing power allows us to analyze networks in economic settings in ways not previously possible. In this paper, I describe some of the ways in which networks are helping economists to model and understand behavior. I begin with an example that demonstrates the sorts of things that researchers can miss if they do not account for network patterns of interaction. Next I discuss a taxonomy of network properties and how they impact behaviors. Finally, I discuss the problem of developing tractable models of network formation.
Full-Text Access | Supplementary Materials


"From Micro to Macro via Production Networks"
Vasco M. Carvalho
A modern economy is an intricately linked web of specialized production units, each relying on the flow of inputs from their suppliers to produce their own output which, in turn, is routed towards other downstream units. In this essay, I argue that this network perspective on production linkages can offer novel insights on how local shocks occurring along this production network can propagate across the economy and give rise to aggregate fluctuations. First, I discuss how production networks can be mapped to a standard general equilibrium setup. In particular, through a series of stylized examples, I demonstrate how the propagation of sectoral shocks- and hence aggregate volatility- depends on different arrangements of production, that is, on different "shapes" of the underlying production network. Next I explore, from a network perspective, the empirical properties of a large-scale production network as given by detailed US input-output data. Finally I address how theory and data on production networks can be usefully combined to shed light on comovement and aggregate fluctuations.
Full-Text Access | Supplementary Materials


"Community Networks and the Process of Development"
Kaivan Munshi
My objective in this paper is to lay the groundwork for a new network-based theory of economic development. The first step is to establish that community-based networks are active throughout the developing world. Plenty of anecdotal and descriptive evidence supports this claim. However, showing that these networks improve the economic outcomes of their members is more of a challenge. Over the course of the paper, I will present multiple strategies that have been employed to directly or indirectly identify network effects. The second step is to look beyond a static role for community networks, one of overcoming market failures and improving the outcomes of their members in the short-run, to examine how these informal institutions can support group mobility. A voluminous literature documents the involvement of communities in internal and international migration, both historically and in the contemporary economy. As with the static analysis, the challenge here is to show statistically that community networks directly support the movement of groups of individuals. I will show how predictions from the theory can be used to infer a link between networks and migration in very different contexts.
Full-Text Access | Supplementary Materials


"How Can Scandinavians Tax So Much?"
Henrik Jacobsen Kleven
American visitors to Scandinavian countries are often puzzled by what they observe: despite large income redistribution through distortionary taxes and transfers, these are very high-income countries. They rank among the highest in the world in terms of income per capita, as well as most other economic and social outcomes. The economic and social success of Scandinavia poses important questions for economics and for those arguing against large redistribution based on its supposedly detrimental effect on economic growth and welfare. How can Scandinavian countries raise large amounts of tax revenue for redistribution and social insurance while maintaining some of the strongest economic outcomes in the world? Combining micro and macro evidence, this paper identifies three policies that can help explain this apparent anomaly: the coverage of third-party information reporting (ensuring a low level of tax evasion), the broadness of tax bases (ensuring a low level of tax avoidance), and the strong subsidization of goods that are complementary to working (ensuring a high level of labor force participation). The paper also presents descriptive evidence on a variety of social and cultural indicators that may help in explaining the economic and social success of Scandinavia.
Full-Text Access | Supplementary Materials


"Why Do Developing Countries Tax So Little?"
Timothy Besley and Torsten Persson
Low-income countries typically collect taxes of between 10 to 20 percent of GDP while the average for high-income countries is more like 40 percent. In order to understand taxation, economic development, and the relationships between them, we need to think about the forces that drive the development process. Poor countries are poor for certain reasons, and these reasons can also help to explain their weakness in raising tax revenue. We begin by laying out some basic relationships regarding how tax revenue as a share of GDP varies with per capita income and with the breadth of a country's tax base. We sketch a baseline model of what determines a country's tax revenue as a share of GDP. We then turn to our primary focus: why do developing countries tax so little? We begin with factors related to the economic structure of these economies. But we argue that there is also an important role for political factors, such as weak institutions, fragmented polities, and a lack of transparency due to weak news media. Moreover, sociological and cultural factors- such as a weak sense of national identity and a poor norm for compliance- may stifle the collection of tax revenue. In each case, we suggest the need for a dynamic approach that encompasses the two-way interactions between these political, social, and cultural factors and the economy.
Full-Text Access | Supplementary Materials


"Taxing across Borders: Tracking Personal Wealth and Corporate Profits"
Gabriel Zucman
This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world's personal financial wealth is held offshore, costing more than $200 billion to governments every year. Despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising. I discuss the recent proposals made to address these issues, and I argue that the main objective should be to create a world financial registry.
Full-Text Access | Supplementary Materials


"Tax Morale"
Erzo F. P. Luttmer and Monica Singhal
There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected. Meanwhile, tax administrators also tend to place a great deal of emphasis on the importance of improving "tax morale," by which they generally mean increasing voluntary compliance with tax laws and creating a social norm of compliance. We will define tax morale broadly to include nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework. Tax morale does indeed appear to be an important component of compliance decisions. We demonstrate that tax morale operates through a variety of underlying mechanisms, drawing on evidence from laboratory studies, natural experiments, and an emerging literature employing randomized field experiments. We consider the implications for tax policy and attempt to understand why recent interventions designed to improve morale, and thereby compliance, have had mixed results to date.
Full-Text Access | Supplementary Materials


"The Economics of Guilds"
Sheilagh Ogilvie
Occupational guilds in medieval and early modern Europe offered an effective institutional mechanism whereby two powerful groups, guild members and political elites, could collaborate in capturing a larger slice of the economic pie and redistributing it to themselves at the expense of the rest of the economy. Guilds provided an organizational mechanism for groups of businessmen to negotiate with political elites for exclusive legal privileges that allowed them to reap monopoly rents. Guild members then used their guilds to redirect a share of these rents to political elites in return for support and enforcement. In short, guilds enabled their members and political elites to negotiate a way of extracting rents in the manufacturing and commercial sectors, rents that neither party could have extracted on its own. First, I provide an overview of where and when European guilds arose, what occupations they encompassed, how large they were, and how they varied across time and space. I then examine how guild activities affected market competition, commercial security, contract enforcement, product quality, human capital, and technological innovation. The historical findings on guilds provide strong support for the view that institutions arise and survive for centuries not because they are efficient but because they serve the distributional interests of powerful groups.
Full-Text Access | Supplementary Materials


"The Wages of Sinistrality: Handedness, Brain Structure, and Human Capital Accumulation"
Joshua Goodman
Left- and right-handed individuals have different neurological wiring, particularly with regard to language processing. Multiple datasets from the United States and the United Kingdom show that lefties exhibit significant human capital deficits relative to righties. Lefties score 0.1 standard deviations lower on cognitive skill measures, have more behavioral problems, have more learning disabilities such as dyslexia, complete less schooling, and work in occupations requiring less cognitive skill. Most strikingly, lefties have 10-12 percent lower annual earnings than righties, much of which can be explained by observable differences in cognitive skills and behavioral problems. Lefties work in more manually intensive occupations than do righties, further suggesting their primary labor market disadvantage is cognitive rather then physical. I argue here that handedness can be used to explore the long-run impacts of differential brain structure generated in part by genetics and in part by poor infant health.
Full-Text Access | Supplementary Materials


"Retrospectives: The Cold-War Origins of the Value of Statistical Life"
H. Spencer Banzhaf
This paper traces the history of the "Value of Statistical Life" (VSL), which today is used routinely in benefit-cost analysis of life-saving investments. The "value of statistical life" terminology was introduced by Thomas Schelling (1968) in his essay, "The Life You Save May Be Your Own." Schelling made the crucial move to think in terms of risk rather than individual lives, with the hope to dodge the moral thicket of valuing "life." But as recent policy debates have illustrated, his move only thickened it. Tellingly, interest in the subject can be traced back another twenty years before Schelling's essay to a controversy at RAND Corporation following its earliest application of operations research to defense planning. RAND wanted to avoid valuing pilot's lives but the Air Force insisted they confront the issue. Thus, the VSL is not only well acquainted with political controversy; it was born from it.
Full-Text Access | Supplementary Materials

"Recommendations for Further Reading"
Timothy Taylor
Full-Text Access | Supplementary Materials

"Correspondence: The Missing Middle"
James Tybout
Full-Text Access | Supplementary Materials