Poverty and income inequality

Nicola Borri, Pietro Reichlin, 08 September 2015

Some argue that the increasing wealth-to-income ratios observed in many advanced economies are determined by housing and capital gains. This column considers the growing wealth-to-income ratio in an economy where capital and labour are used in two sectors: construction and manufacturing. If productivity in manufacturing grows faster than in construction – a ‘housing cost disease’ – it has adverse effects on social welfare. Concretely, the higher the appreciation of the value of housing, the lower the welfare benefit of a rising labour efficiency in manufacturing.

Ravi Kanbur, Joseph Stiglitz, 18 August 2015

Growth theories traditionally focus on the Kaldor-Kuznets stylised facts. Ravi Kanbur and Nobelist Joe Stiglitz argue that these no longer hold; new theory is needed. The new models need to drop competitive marginal productivity theories of factor returns in favour of rent-generating mechanism and wealth inequality by focusing on the ‘rules of the game.’ They also must model interactions among physical, financial, and human capital that influence the level and evolution of inequality. A third key component will be to capture mechanisms that transmit inequality from generation to generation.

Philippe Aghion, Ufuk Akcigit, Antonin Bergeaud, Richard Blundell, David Hemous, 28 July 2015

In recent decades, there has been an accelerated increase in top income inequality, particularly in developed countries. This column argues that innovation partly accounts for the surge in top income inequality and fosters social mobility. In particular, the positive effect of innovation on social mobility is due to new innovators.

Bernardin Akitoby, Sanjeev Gupta, Abdelhak Senhadji, 18 July 2015

There has been a heated debate about the effectiveness of fiscal policy as a countercyclical tool but little evidence on how it can support growth. This column shows that fiscal policy can lift medium- and long-term growth in both advanced and developing economies. But all fiscal reforms are not equal in their growth dividend. Successful reforms are often part of a broader reform package and can balance the growth-equity trade-off.

Nathaniel Hilger, 17 July 2015

Intergenerational mobility – the ability of less-advantaged children to achieve economic success – is held in high regard across the political spectrum in the US and other industrialised countries. But not much is known about its history. This column presents a new method that allows intergenerational measurement further back in time, as well as across more places and demographic groups. One firm result shows a large increase in intergenerational mobility after 1940 in the US South and among African Americans.

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