Alberto Alesina, Matteo Paradisi, 29 May 2015

Most of us intuitively believe that politicians reduce taxes and increase spending in the run up to elections to curry favour with voters. But our logic may well be flawed. This column presents evidence from recent Italian elections suggesting that things aren’t so black and white. Yes, some municipalities set lower tax rates in the run up to elections. But the evidence also suggests that municipalities running deficits will think twice about tax breaks and spending sprees. Politicians in big cities are also more cautious, choosing to focus not on tax but on more pressing local issues.

Melissa S. Kearney, Phillip B. Levine, 28 May 2015

Compared to other developed countries, the US ranks high on income inequality and low on social mobility. This could be particularly concerning if such a trend is self-perpetuating. In this column, the authors argue that there is a causal relationship between income inequality and high school dropout rates among disadvantaged youth. In particular, moving from a low-inequality to a high-inequality state increases the likelihood that a male student from a low socioeconomic status drops out of high school by 4.1 percentage points. The lack of opportunity for disadvantaged students, therefore, may be self-perpetuating.

Kevin Bryan, 27 May 2015

John Nash passed away this week. This column pays tribute to a mathematician whose contributions to economics are enormously influential.

Andreas Müller, Kjetil Storesletten, Fabrizio Zilibotti, 27 May 2015

In the policy circles, there are confronting positions regarding Greece’s assistance programme and the structural reforms it should implement. This column argues that the best response is pragmatism and sequential compromise. Efficiency requires an assistance programme providing the country with debt relief with an intervention of an institution such as the IMF. Thus, misconceived economic principles could bring large welfare losses for Greece and renewed financial instability in the Eurozone.

Hanming Fang, Quanlin Gu, Wei Xiong, Li-An Zhou, 27 May 2015

China has experienced a decade-long housing market boom, with the market being compared to the housing bubbles of Japan in the 1980s and the US in the 2000s. This column uses data on mortgage loans in 120 cities to investigate whether the Chinese housing market might trigger a financial crisis. Although price growth rates are comparable to those experienced by Japan prior to its bubble, substantial income growth and high mortgage down payment ratios helped support the steady participation of low-income households. A high expectation of future income growth, however, might have been a key driver of price-to-income ratios, and this may not be sustainable.

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