Institutions and Inequality

Question 1

Inequality leads to what type of feedback loop?

Answer 1

An extractive feedback loop (poverty)

Question 2

What is the prediction of the theory of institutions on inequality?

Answer 2

Inequality is higher in extractive regimes

Question 3

is inequality growing or decreasing?

Answer 3

increasing and stays high in extractive regimes
–> Inclusive institutions:
- Broad cross section of society: low inequality
- However, the positive feedback loop can always be broken…: inequality might be increasing

Question 4

How to measure inequality?

Answer 4

1. Surveys (door to door)

Question 5

what can we use instead of surveys?

Answer 5

administrative tax data (it has data on the rich and there’s fewer incentives to lie)

Question 6

Problems with surveys

Answer 6

• Very difficult to get data on the super rich
• Difficult to contact them (opportunity cost)
• They are a few by definition (top 1%, top 0.1%)
• Even if contact them, difficult to get data from all sources: Income from work, Capital gains, Investment income…

Question 7

progressive income tax

Answer 7

tax people a higher percentage on each echillon of income they reach.

Question 8

Top 1% pre and post wars?

Answer 8

The top 1% should account for 1% of income:
- pre wars = 20%
- post = 50%

Question 9

Top 1% in France decreased in 1930s, why?

Answer 9

-abolition of rentiers: men and women who relied on government bonds and other securities for substantial parts of their incomes
- Income tax started in 1914
- 2 wars + great depression

*but this is only correlation not causality

Question 10

What caused the rise in inequality between US and France?

Answer 10

• France vs US: US top 1% didn’t dip as much
• skill-biased technology, incorrect cuz France also had technology
• Tax rates according to Picketty

Question 11

Other explanations for rising inequality: the rise of China

Answer 11

Loss of manufacturing jobs in the US because of China
- “The China Syndrome: Local Labor Market Effects of Import Competition in the
United States”, Autor, Dorn, Hanson
- “Rising imports cause higher unemployment, lower labor force participation, and
reduced wages in local labor markets that house import-competing manufacturing
industries”
- Loss of good jobs

Question 12

Other explanations for rising inequality: Automation

Answer 12

• Managerial, professional, and technical occupations: non-routine cognitive tasks
• Clerical, administrative and sales occupations: routine cognitive tasks
• Production and operative occupations: routine manual tasks
• Service occupations: non-routine manual tasks

–> Routine tasks got automated and only non routine jobs left (either manual or cognitive). This eviscerated the middle class + Increased inequality

Question 13

What are the explanations for rising inequality?

Answer 13

1. Skill-biased technological change
2. the rise of China
3. Automation

*But these 3 factors also play a role in France (only a correlation and not a causality)