Daniele Tavani

Estimated non-linearities and multiple equilibria in a model of distributive-demand cycles

Abstract We introduce the results of a non-parametric estimate of the US wage-Phillips Curve into a simplified version of the model of the wage-price spiral by Flaschel and Krolzig (2008). Making use of Okun’s law, the non-linearity in the wage inflation-employment relation translates into a non-linearity in the so-called ‘distributive curve’ of the economy. Exploiting the observed non-linearity in extending an otherwise standard demand-distribution model (Taylor 2004), we provide a dynamical analysis both in wage-led and profit-led effective demand regimes. In a profit-led scenario, shown to be the empirically relevant case for the US economy, there are two stable equilibria of Goodwin (1967) growth cycle type, identified as a stable depression and a stable boom, and a saddle-path stable equilibrium in between them. Both stable steady states are surrounded by trajectories that cycle counterclockwise around their basins of attraction. The obtained type of growth fluctuations can be verified by a long phase cycle estimation for the US economy using a method developed by Kauermann, Teuber and Flaschel (2008).

Embedding Care and Unpaid Work in Macroeconomic Modeling: A Structuralist Approach

Abstract This study embeds paid and unpaid care work in a structuralist macroeconomic model. Care work is formally modeled as a gendered input into the market production process via its impact on the current and future labor force, with altruistic motivations determining both how much support people give one another and the economic effectiveness of that support. This study uses the model to distinguish between two types of economies – a “selfish” versus an “altruistic” economy – and seeks to understand how different macroeconomic conditions and events play out in the two cases. Whether and how women and men share the financial and time costs of care condition the results of the comparison with more equal sharing of care responsibilities making the “altruistic” case more likely.

Redistribution in a Neo‐Kaleckian Two‐Country Model

We investigate the interaction between demand-driven growth and income distribution in open economies, by combining expenditure-switching and demand spillover effects in a neo-Kaleckian two country model. First, we specify elasticities of wage share and real exchange rate to the money wage relative to labor productivity, in order to precisely describe the distributive pass-through from money wages to the labor share and the real exchange rate. Second, we analyze the demand effects of an increase in the money wage for given labor productivity (a redistribution towards labor) in both Home and Foreign country, as well as globally. We derive closed form results for two identical countries. These results indicate that redistribution towards labor at Home: (i) always increases growth globally if Home is wage-led, but can lead to lower growth at Home relative to Foreign; and (ii) will always imply lower growth at Home relative to Foreign if Home is profit-led, but can still be growth-enhancing at Home. Thus, to the extent that countries are concerned with their relative economic performance, a fallacy of composition can emerge. Numerical simulations suggest that these fallacies could indeed occur. As a consequence, ‘returns to coordination’ over international labor policies might be substantial.

Daily Variation in Natural Disaster Casualties: Information Flows, Safety, and Opportunity Costs in Tornado Versus Hurricane Strikes

Casualties from natural disasters may depend on the day of the week they strike. With data from the Spatial Hazard Events and Losses Database for the United States (SHELDUS), daily variation in hurricane and tornado casualties from 5,043 tornado and 2,455 hurricane time/place events is analyzed. Hurricane forecasts provide at-risk populations with considerable lead time. Such lead time allows strategic behavior in choosing protective measures under hurricane threat; opportunity costs in terms of lost income are higher during weekdays than during weekends. On the other hand, the lead time provided by tornadoes is near zero; hence tornados generate no opportunity costs. Tornado casualties are related to risk information flows, which are higher during workdays than during leisure periods, and are related to sheltering-in-place opportunities, which are better in permanent buildings like businesses and schools. Consistent with theoretical expectations, random effects negative binomial regression results indicate that tornado events occurring on the workdays of Monday through Thursday are significantly less lethal than tornados that occur on weekends. In direct contrast, and also consistent with theory, the expected count of hurricane casualties increases significantly with weekday occurrences. The policy implications of observed daily variation in tornado and hurricane events are considered.

Integrating engineering outputs from natural disaster models into a dynamic spatial computable general equilibrium model of Centerville

Abstract A dynamic spatial computable general equilibrium (DSCGE) model is constructed that describes how engineering and economic models can be integrated to assess the economic, demographic, and fiscal impacts of disasters. This paper has two objectives. First, we introduce the DSCGE model and describe how it is calibrated specifically for Centerville. Second, to demonstrate the analytic flexibility of the DSCGE platform, we present economy-wide prompt effects from simulations involving spatially circumscribed shocks to Centerville’s building portfolio and transportation infrastructure, and then detail dynamic economy-wide effects from simulations involving combinations of infrastructure damage and adjustments to the economic behavior of agents. We conclude with a discussion of the technical challenges ahead.

Public Capital, Redistribution and Growth in a Two‐Class Economy

We develop a growth model with a productive and redistributive role for the public sector in a two‐class economy. We focus on two different model closures: a Classical‐Marxian one, which produces endogenous growth, and a Post‐Keynesian one where growth is exogenous. When growth is endogenous, the policy maker fixes the long run accumulation rate and the after tax income shares. In the exogenous growth model, the government determines the after tax income shares and the unemployment compensation. In both cases, the policy choice is compared to a benchmark scenario involving no redistribution.

ENDOGENOUS TECHNICAL CHANGE IN ALTERNATIVE THEORIES OF GROWTH AND DISTRIBUTION

This paper surveys the last two and a half decades of non-neoclassical literature on endogenous technical change and the factor distribution of income. The implications of classical- Marxian and post-Keynesian contributions are compared with neoclassical exogenous and endogenous growth theories. We find the comparison illuminating in several respects: despite the strong differences in the assumptions regarding the substitutability between capital and labor, the role of different classes in society, and whether or not productive factors are fully employed, the various alternative models can be classified in a way that highlights remarkable similarities with their neoclassical counterparts. Both neoclassical and alternative theories of endogenous growth: (i) have shown that long-run growth is sensitive to investment decisions; (ii) rely on a linear spillover from the stock of knowledge to the production of innovations, and (iii) match the Kaldor facts in the long run. The comparison allows to evaluate competing theories by looking at the different channels they emphasize: saving behavior and market structure in the neoclassical theories, as opposed to income distribution, the state of the labor market, and investors’ behavior in alternative theories.

Endogenous technical change, employment and distribution in the Goodwin model of the growth cycle

Abstract In this paper, we introduce endogenous technological change through R&D expenditure on labor-augmenting innovation in the cyclical growth model by Goodwin (Goodwin, R. 1967. “A Growth Cycle.” In Socialism, Capitalism, and Economic Growth, edited by Carl Feinstein, Cambridge, UK: Cambridge University Press.). Innovation is a costly, forward-looking process financed out of profits, and pursued by owners of capital stock (capitalists) in order to foster labor productivity and save on labor requirements. Our main findings are: (i) Goodwin-type distributive cycles arise even with dynamic optimization, but (ii) endogenous technical change has a dampening effect on economic fluctuations; (iii) steady state per capita growth, income distribution and employment rate are endogenous, and depend on the capitalists’ discount rate, the institutional variables regulating the labor market, and policy variables such as subsidies to R&D activity. Implementing the model numerically to match long run data for the US, we show that: (iv) an increase in the capitalists’ discount rate lowers per-capita growth, the employment rate and the labor share; (v) an increase in workers’ bargaining strength moderately raises the labor share and moderately decreases per-capita growth, while sharply reducing employment: quarterly US fluctuations (1948–2006) in employment and the labor share seem to support this result; (vi) a balanced budget increase in the R&D subsidy also fosters per-capita growth at the expenses of the labor share, even though the corresponding variations might be small.

A tale of two Ginis in the US, 1921–2012

Following a methodology proposed by Jantzen and Volpert (2012), we use IRS Adjusted Gross Income (AGI) data for the United States (1921-2012) to estimate two Gini-like indices representing inequality at the bottom and the top of the income distribution. We also calculate the overall Gini index as a function of the parameters underlying the two indices. Our findings can be summarized as follows. First, we find that the increase in the Gini index from the mid 1940s to the late 1970s seems to be mostly explained by an increase in inequality at the bottom of the income distribution, which more than offsets the decrease in inequality at the top. The implication is that middle incomes gained relative to high incomes, but especially relative to low incomes. Conversely, it is rising inequality at the top that appears to drive the rise in the Gini index since 1981. Second, inequality at the top of the income distribution follows a U-shaped trajectory over time, similar to the pattern of the share of top incomes documented by Piketty and Saez (2003, 2006) and Atkinson, Piketty, and Saez (2011). Third, the welfare effects of the different forces behind an increasing Gini index can be evaluated in light of the Lorenz dominance criterion proposed by Atkinson (1970): both top-driven and bottom-driven increases in the index appear not to imply strict Lorenz dominance by previous income distributions, and therefore are not associated with lower welfare in an absolute sense. In a relative sense, however, once average growth rates over the two periods are taken into account, the top-driven increase in inequality since 1981 appears to have been welfare reducing.

Growth, Income Distribution, and the Entrepreneurial State

In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) model of the growth cycle. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly funded research and development (R&D), which augments the growth rate of labor productivity. We study two versions of the model: with and without induced technical change, that is with or without a feedback from the labor share to labor productivity growth. In both cases we show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticity of labor productivity growth to public R&D, there exists a tax rate that maximizes the long-run labor share, and it is smaller than the growth-maximizing tax rate; (ii) the long-run share of labor is always increasing in the share of public spending in infrastructure; (iii) different taxation schemes can affect the stability of growth cycles.