OCTOBER 28 2011

Linda Goldberg, NY Fed. The International Role of the Dollar: Does It Matter if This Changes? Whether the rise of other currencies presents more negative or positive consequences for the United States is closely linked to conditions within the United States. If the United States maintains the strong economic fundamentals and the types of institutional strengths that have supported the dollars international roles, the consequences of a reduced dollar role may not be a large concern. Indeed, the emergence of plausible alternatives to the dollar could signal strength in other economies and serve as a positive source of discipline on U.S. decisions. A decline of dollars international primacy in such an environment is not to be regarded as a significant threat to U.S. economic well-being when this decline arises in the context of strong U.S. growth and institutional fundamentals. However, if poor U.S. policy decisions undermine U.S. economic fundamentals and institutional strengths, the reduced international role of the dollar could be one component of a broader decline. The changes described below could have more adverse effects if the reduced dollar role is associated with less auspicious U.S. policy and institutions.

Martin S. Feldstein, NBER:  The Tax Reform Act of 1986: Comment on the 25^th Anniversary. The Tax Reform Act of 1986 was a powerful pro-growth force for the American economy.  Equally important, as we look back on it after 25 years, we also see that it taught us two important lessons.  First, it showed that politicians with very different political philosophies on the right and on the left could agree on a major program of tax rate reduction and tax reform. Second, it showed that the amount of taxable income is very sensitive to marginal tax rates. More specifically, the evidence based on the 1986 tax rate reductions shows that the response of taxpayers to reductions in marginal tax rates offsets a substantial portion of the revenue that would otherwise be lost.  This implies that combining a broadening of the tax base that raises revenue equal to 10 percent of existing personal income tax revenue with a 10 percent across the board cut in all marginal tax rates would raise revenue equal to about four percent of existing tax revenue.  With personal income tax revenue in 2011 of about $1 trillion, that four percent increase in net revenue would be $40 billion at the current level of taxable income or more than $500 billion over the next ten years.

Joshua Aizenman, Yothin Jinjarak, Donghyun Park, VoxEU: Capital flows and economic growth in the era of financial integration and crisis, 1990–2010. The relationship between financial openness and economic growth remains the subject of heated controversy. This column examines the links between economic growth and FDI, portfolio investment, equity investment, and short-term debt in the last 20 years. It finds a large and robust relationship between growth and FDI but not with other types of financial flows.

Ricardo Hausmann, Harvard Univeristy, César Hidalgo, the Massachusetts Institute of Technology et al: Atlas of Economic Complexity. The fundamental proposition of the book is that the wealth of nations is driven by productive knowledge. Individuals are limited in the things they can effectively know and use in production so the only way a society can hold more knowledge is by distributing different chunks of knowledge to different people. To use the knowledge, these chunks need to be re-aggregated by connecting people through organizations and markets. The complex web of products and markets is the other side of the coin of the accumulating productive knowledge.

  

Vikesh Amin, Petter Lundborg, Dan-Olof Rooth, IZA: Following in Your Father's Footsteps: A Note on the Intergenerational Transmission of Income between Twin Fathers and their Sons. We provide the first twin-based estimates of the intergenerational transmission of income between fathers and sons. Using Swedish register data on the income of monozygotic twin fathers and their sons, we are able to control for unobserved endowments at the twin-pair level when estimating the intergenerational relationship. We find a cross-sectional intergenerational income elasticity of 0.276, while our twin-based intergenerational income elasticity is 0.12. This is close to the estimate of 0.10 found by Björklund et al. (2006) using an adoption design. This suggests that at most half of the income transmission can be given a causal interpretation.

Jagdish Bhagwati, Project Syndicate: Does Redistributing Income Reduce Poverty? Many on the left are suspicious of the idea that economic growth helps to reduce poverty in developing countries. They argue that growth-oriented policies seek to increase gross national product, not to ameliorate poverty, and that redistribution is the key to poverty reduction. These assertions, however, are not borne out by the evidence.

Kuhn, Peter J.,  Villeval, Marie Claire, UCLA: Do Women Prefer a Co-operative Work Environment? Are women disproportionately attracted to work environments where cooperation rather than competition is rewarded? This paper reports the results of a real-effort experiment in which participants choose between an individual compensation scheme and a team-based payment scheme. We find that women are more likely than men to select team-based compensation in our baseline treatment, but women and men join teams with equal frequency when we add an efficiency advantage to team production. Using a simple structural discrete choice framework to reconcile these facts, we show that three elements can explain the observed patterns in the team-entry gender gap: (1) a gender gap in confidence in others (i.e. women are less pessimistic about their prospective teammates' relative ability), (2) a greater responsiveness among men to instrumental reasons for joining teams, and (3) a greater "pure" preference for working in a team environment among women.

Libertad Gonzalez, IZA: The Effects of a Universal Child Benefit. I study the impact of a universal child benefit on fertility and family well-being. I exploit the unanticipated introduction of a new, sizeable, unconditional child benefit in Spain in 2007, granted to all mothers giving birth on or after July 1, 2007. The regression discontinuity-type design allows for a credible identification of the causal effects. I find that the benefit did lead to a significant increase in fertility, as intended, part of it coming from an immediate reduction in abortions. On the unintended side, I find that families who received the benefit did not increase their overall expenditure or their consumption of directly child-related goods and services. Instead, eligible mothers stayed out of the labor force significantly longer after giving birth, which in turn led to their children spending less time in formal child care and more time with their mother during their first year of life.

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