Relevant and even prescient commentary on news, politics and the economy.

Consumption inequality and income inequality

From the same post at Taxprofblog, a different study presents data and definitions on a related issue, but focused on income, which is a somewhat separate and overlapping conversation:

Orazio Attanasio (University College London, Department of Economics), Erik Hurst (University of Chicago, Booth School of Business) & Luigi Pistaferri (Stanford University, Department of Economics), The Evolution of Income, Consumption, and Leisure Inequality in the US, 1980-2010 (NBER):

Recent research has documented that income inequality in the United States has increased dramatically over the prior three decades. There has been less of a consensus, however, on whether the increase in income inequality was matched by an equally large increase in consumption inequality. Most researchers have studied this question using data from the Consumer Expenditure Survey (CE)


All of our different methods yield similar results. We find that consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality

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Do the 1% Work Harder Than the 99%?

Taxprofblog offers two studies on income and leisure that should spark some discussion.  I have split the two studies out to two posts at Angry Bear as they are somewhat different conversations:

Income Inequality and Leisure Inequality: Do the 1% Work Harder Than the 99%?

Wall Street Journal Wealth Report, Do the Wealthy Work Harder Than the Rest?, by Robert Frank:

A new study [below] offers evidence that higher-educated (and therefore higher-earning) Americans do indeed spend more time working and less time on leisure than poorer income groups. In fact, while income inequality may be growing, “leisure inequality” – time spent on enjoyment – is growing as a mirror image, with the low earners gaining leisure and the high earners losing.

The more surprising discovery, however, is a corresponding leisure gap has opened up between the highly-educated and less-educated. Low-educated men saw their leisure hours grow to 39.1 hours in 2003-2007, from 36.6 hours in 1985. Highly-educated men saw their leisure hours shrink to 33.2 hours from 34.4 hours. … A similar pattern emerged for women. Low-educated women saw their leisure time grow to 35.2 hours a week from 35 hours. High-educated women saw their leisure time decrease to 30.3 hours from 32.2 hours. … (The study defines leisure as time spend watching TV, socializing, playing games, talking on the phone, reading personal email, enjoying entertainment and hobbies and other activities.) …

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Small businesses and drive the economy?

points to research suggesting a tipping point about the notion that small businesses drive the economy:

Martin A. Sullivan (Tax Analysts), New Research Weakens Case for Small Business Tax Relief
The National Federation of Independent Business states on its website: “Small business has created about two of every three net new jobs in the United States since at least the early 1970s.” And on its website, the Small Business Administration claims, “Small firms accounted for 65 percent (or 9.8 million) of the 15 million net new jobs created between 1993 and 2009.” These claims are endlessly repeated on television and in print. And both political parties are perfectly happy to leave them unchallenged. But two new strands of academic research are quietly shredding the idea that policies to support small businesses hold the key to job creation.

  • [John Haltiwanger (University of Maryland, Department of Economics), Ron S. Jarmin (U.S. Census Bureau, Center for Economic Studies) & Javier Miranda (U.S. Census Bureau, Center for Economic Studies), Who Creates Jobs? Small vs. Large vs. Young
  • Erik Hurst & Benjamin Pugsley (both of the University of Chicago, Department of Economics), What Do Small Businesses Do?]

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Is Capital Gains Tax Law Biased Against Low Income Investors?

Paul Caron at Taxprof blog points us to capital gains

Is Capital Gains Tax Law Biased Against Low Income Investors?

Min Dai (National University of Singapore, Department of Mathematics), Hong Liu (Washington University, Olin Business School) & Yifei Zhong (University of Oxford, Mathematical Institute), Is Capital Gains Tax Law Biased Against Low Income Investors?:

The current capital gains tax law stipulates that the tax rate for short-term investment (gains and losses) and long-term losses is equal to an investor’s marginal ordinary income tax rate, which implies that this rate for low income investors can be significantly lower than that for high income investors. In an optimal consumption and investment model with asymmetric long-term/short-term tax rates, we show that even though capital gains tax rates for low income investors are always lower than those for high income investors, the current capital gains tax law is significantly biased against low income investors in the sense that these investors are willing to pay a substantial fraction of their initial wealth to gain the same capital gains tax treatment as high income investors have. The main reason is that investors have the option of realizing capital losses at the (higher) marginal ordinary income tax rate and realizing capital gains at the (lower) long-term tax rate and the value of this option is significantly lower for low income investors than that for high income investors. This result is robust to various changes in model parameter values. Raising capital gains tax rates for low income investors to the levels for high income investors would reduce the bias and substantially increase stock market participation by low income households. With regard to the optimal tax realization strategy, in sharp contrast to most of the existing literature, we show that it can be optimal to defer short-term capital losses beyond one year and to realize short-term gains.

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