Public Policy and Economic Productivity
Revisiting U. S. Productivity Growth over the Past Century with a View of the Future
Robert Gordon
NBER Working Paper, March 2010
Abstract:
This paper provides three perspectives on long-run growth rates of labor productivity (LP) and of multi-factor productivity (MFP) for the U. S. economy. It extracts statistical growth trends for labor productivity from quarterly data for the total economy going back to 1952, provides new estimates of MFP growth extending back to 1891, and tackles the problem of forecasting LP and MFP twenty years into the future. The statistical trend for growth in total economy LP ranged from 2.75 percent in early 1962 down to 1.25 percent in late 1979 and recovered to 2.45 percent in 2002. Our results on productivity trends identify a problem in the interpretation of the 2008-09 recession and conclude that at present statistical trends cannot be extended past 2007. For the longer stretch of history back to 1891, the paper provides numerous corrections to the growth of labor quality and to capital quantity and quality, leading to significant rearrangements of the growth pattern of MFP, generally lowering the unadjusted MFP growth rates during 1928-50 and raising them after 1950. Nevertheless, by far the most rapid MFP growth in U. S. history occurred in 1928-50, a phenomenon that I have previously dubbed the "one big wave." The paper approaches the task of forecasting 20 years into the future by extracting relevant precedents from the growth in labor productivity and in MFP over the last seven years, the last 20 years, and the last 116 years. Its conclusion is that over the next 20 years (2007-2027) growth in real potential GDP will be 2.4 percent (the same as in 2000-07), growth in total economy labor productivity will be 1.7 percent, and growth in the more familiar concept of NFPB sector labor productivity will be 2.05 percent. The implied forecast 1.50 percent growth rate of per-capita real GDP falls far short of the historical achievement of 2.17 percent between 1929 and 2007 and represents the slowest growth of the measured American standard of living over any two-decade interval recorded since the inauguration of George Washington.
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Can the Fed Predict the State of the Economy?
Tara Sinclair, Fred Joutz & H.O. Stekler
Economics Letters, July 2010, Pages 28-32
Abstract:
We show that systematic forecast errors reveal that the Fed is "surprised" by real and inflationary cycles. The Fed knows the state of the economy for the current quarter, but cannot predict it one quarter ahead.
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How Far are We from the Slippery Slope? The Laffer Curve Revisited
Mathias Trabandt & Harald Uhlig
University of Chicago Working Paper, April 2010
Abstract:
We characterize the Laffer curves for labor taxation and capital income taxation quantitatively for the US, the EU-14 and individual European countries by comparing the balanced growth paths of a neoclassical growth model featuring "constant Frisch elasticity" (CFE) preferences. We derive properties of CFE preferences. We provide new tax rate data. For benchmark parameters, we find that the US can increase tax revenues by 30% by raising labor taxes and 6% by raising capital income taxes. For the EU-14 we obtain 8% and 1%. Denmark and Sweden are on the wrong side of the Laffer curve for capital income taxation.
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Proposition 13 and the California Fiscal Shell Game
Colin McCubbins & Mathew McCubbins
Stanford Working Paper, December 2009
Abstract:
We study the effects of California's Tax and Expenditure Limitations, especially Proposition 13. We find that Proposition 13 was indeed effective at reducing both ad valorem property taxes per capita and total state and local taxes per capita, at least in the short run. We further argue that there have been unintended secondary effects that have resulted in an increased tax burden, undermining the aims of Proposition 13. To circumvent the limits imposed by Proposition 13, the state has drastically increased nonguaranteed debt, has privatized the public fisc, and has devolved the authority to lay and collect taxes and to spend the proceeds so gained. The devolution of authority has been among the swiftest growing aspects of government finance in California, to a far greater extent than in other states. Lastly, we argue that the new tax and spending authorities that have been created to circumvent Proposition 13 have led to a reduction in government transparency and accountability and pose an increasing threat to our democracy.
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Immigration, fertility, and human capital: A model of economic decline of the West
Leonid Azarnert
European Journal of Political Economy, forthcoming
Abstract:
I show how the influences of unskilled immigration, differential fertility between immigrants and the local indigenous population, and incentives for investment in human capital combine to predict the decline of the West. In particular, indigenous low-skilled workers lose from unskilled immigration even if the indigenous low-skilled workers do not finance redistribution, do not compete with immigrants in the labor market, and do not compete with immigrants for publicly financed income transfers. For the economy at large, high-fertility unskilled immigrants and a low-fertility indigenous population result in economic decline through reduced human capital accumulation and reduced growth of per-capita output.
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Trusting What You Know: Information, Knowledge, and Confidence in Social Security
Fay Lomax Cook, Lawrence Jacobs & Dukhong Kim
Journal of Politics, April 2010, Pages 397-412
Abstract:
Can public trust in government be increased by expanding knowledge of the activities government already performs? This study takes advantage of a naturally occurring experiment - the distribution of personal statements by the Social Security Administration - to examine the impact of increased domain-specific information on the public's knowledge and confidence. Analysis of a large Gallup survey of attitudes toward Social Security finds that recipients of personal Social Security Statements gained more knowledge of, and confidence in, Social Security than nonrecipients after controlling for individual differences. These results suggest that citizens' evaluations of government institutions echo, in part, the quality and quantity of information distributed to them. The implication for future research on political trust and confidence is to confirm the importance of expanding analysis from global to specific objects of evaluation.
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Jeremy Elkins
Political Theory, April 2010, Pages 214-242
Abstract:
During the past half-century, the United States has declared war on (among else) poverty, cancer, crime, drugs, and terrorism. This essay examines, in the context of these, war as a model for responding to domestic political problems and focuses on the role that that model has played in representing the state and its relation to those evils identified as the enemy.
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Laurence O'Toole & Kenneth Meier
Public Management Review, May 2010, Pages 341-361
Abstract:
Managerial capacity, meant as available potential for managerial resources to be deployed when needed, can be considered 'slack' in a public organization during normal times, but recent developments in the research literature of public administration suggest that such capacity can sometimes contribute to public program performance. Does managerial capacity help to dampen or eliminate the effects of sizeable and negative budget shocks on the outcomes of public organizations? This question is investigated in a set of 1,000 organizations over an eight-year period. For the most part, and largely due to managerial adjustments, budgetary shocks of 10 percent or more have only limited or no negative impacts on performance in the short term. They do, however, cause a drop in performance for certain outcome measures, both immediately and in the following year. Sufficient managerial capacity, however, mitigates these negative performance effects. The findings point toward a key question with which public managers must wrestle: how to balance the costs of slack against the benefits that capacity-as-slack can generate when environmental shocks threaten to disrupt the operation of public programs.
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The Long Run Effects of Changes in Tax Progressivity
Daniel Carroll & Eric Young
Federal Reserve Board Working Paper, December 2009
Abstract:
This paper compares the steady state outcomes of revenue-neutral changes to the progressivity of the tax schedule. Our economy features heterogeneous households who differ in their preferences and permanent labor productivities, but it does not have idiosyncratic risk. We find that increases in the progressivity of the tax schedule are associated with long-run distributions with greater aggregate income, wealth, and labor input. Average hours generally declines as the tax schedule becomes more progressive implying that the economy substitutes away from less productive workers toward more productive workers. Finally, as progressivity increases, income inequality is reduced and wealth inequality rises. Many of these results are qualitatively different than those found in models with idiosyncratic risk, and therefore suggest closer attention should be paid to modeling the insurance opportunities of households.
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Using Stock Returns to Identify Government Spending Shocks
Jonas Fisher & Ryan Peters
Economic Journal, May 2010, Pages 414-436
Abstract:
This article explores a new approach to identifying government spending shocks which avoids many of the shortcomings of existing approaches. The new approach is to identify government spending shocks with statistical innovations to the accumulated excess returns of large US military contractors. This strategy is used to estimate the dynamic responses of output, hours, consumption and real wages to a government spending shock. We find that positive government spending shocks are associated with increases in output, hours and consumption. Real wages initially decline after a government spending shock and then rise after a year. We estimate the government spending multiplier associated with increases in military spending to be about 1.5 over a horizon of 5 years.
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From city club to nation state: Business networks in American political development
Elisabeth Clemens
Theory and Society, May 2010, Pages 377-396
Abstract:
Although cities were given no role in the constitutional order of the United States, the new nation posed the same potential threats to the accumulation of capital and wealth as European monarchs posed to long-powerful urban centers. In mobilizing for self-protection and advancement, American business developed new practices and discourses of citizenship that sustained a central role for the community as the locus of social provision. The strategy combined opportunity-hoarding through restricted membership in civic groups and obligation-hoarding through the alignment of diverse networks of voluntarism with this civic core. The linkage of business interests to this hybrid charitable-civic configuration constituted a source of resistance to nationalizing tendencies driven by demands for social protection. This alternative model of social provision and civic organization sustained a distinctive pattern of political membership and state development. By fiercely defending the capacity of privately governed civic networks to provide substantial social support, this history of business influence through community organizations lives on in the partial and fragmented character of the American welfare state.