Phillip Swagel

Political Instability and Economic Growth

This paper investigates the relationship between political instability and per capita GDP growth in a sample of 113 countries for the period 1950 through 1982. We define political instability as the propensity of a government collapse, and we estimate a model in which such a measure of political instability and economic growth are jointly determined. The main result of this paper is that in countries and time periods with a high propensity of government collapse, growth is significantly lower than otherwise. We also discuss the effects of different types of government changes on growth.

Tax Burden and Migration: a Political Economy Theory and Evidence

The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation, we show -- somewhat against the conventional wisdom -- that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on 11 European countries over the period 1974 to 1992 are consistent with the implications of the theory: a higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.

Trade Barriers and Trade Flows Across Countries and Industries

We use disaggregated data on trade flows, production, and trade barriers for 41 countries in 1988 to examine the political and economic determinants of nontariff barriers, as well as the impact of protection (both tariff and nontariff) on trade flows. We use an econometric framework that allows for the simultaneous determination of trade barriers and trade flows. Our results are consistent with political-economy theories of the determinants of protection: even after accounting for industry- and country-specific factors, nations tend to protect industries that are weak, in decline, politically important, or threatened by import competition, but provide less protection to industries in which exports are important.

Sources of Inflation in Developing Countries

This paper develops stylized facts about the inflation process in developing countries, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. Using annual data from 1964 to 1998 for 53 developing countries, we find that money growth and exchange rate changes-factors typically related to fiscal influences-are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Instead, inertial factors dominate the inflation process in developing countries with fixed exchange rate regimes.

The Effect of Globalization on Wages in the Advanced Economies

This paper examines the effect of globalization on labor markets in the advanced economies, focusing particularly on the claim that increased economic integration has widened the gap between the wages of more skilled and less skilled workers. The broad consensus of research is that globalization, both in terms of increased trade as well as increased capital mobility and foreign direct investment, has had only a modest effect on wages. Instead, changes in technology have led to a pervasive shift in demand for labor that has favored skilled workers to the detriment of less skilled workers.

The Aging of the Population and the Size of the Welfare State

Data for the United States and countries in Western Europe indicate a negative correlation between the dependency ratio and labor tax rates and the generosity of social transfers, after controlling for other factors that influence the size of the welfare state. This is despite the increased political clout of the dependent population implied by the aging of the population. This paper develops an overlapping generations model of intra-and inter-generational transfers (including old-age social security) and human capital formation which addresses this seeming puzzle. We show that with democratic voting, an increase in the dependency ratio can lead to lower taxes or less generous social transfers.

Measures of potential output: an application to Israel

This paper estimates measures of potential output for Israel, with the aim of providing evidence on whether the recent growth slowdown is principally a cyclical slowdown or a structural shift towards a slower growth path after the dramatic developments associated with the years of heavy immigration. Israel poses a challenge because traditional methods of measuring potential output assume relatively stable conditions over an extended period of time. Five methodologies are employed to derive estimates and it is found that four of the measures imply the slowdown stems largely from reduced growth of potential output rather than a cyclical slowdown.

Regional Convergence and the Role of Federal Transfers in Canada

Differences in per capita output across Canadian provinces have narrowed less than disparities in per capita income in past decades. Using a panel regression framework, this paper studies the differential impact of federal transfer programs on output convergence. The evidence suggests that while the Employment Insurance (EI) system seems to have had a significant negative effect on output convergence?by discouraging migration within Canada?the Equalization transfers may have helped spur convergence. The EI system, despite reforms introduced in the 1990s, still appears to contain features that deter labor mobility.

Capital income taxation under majority voting with aging population

An old person typically has a mixed attitude toward the welfare-state benefits, when they are financed by capital taxes, because her income derives mostly from capital. We develop a majority-voting model which focuses on the effect of aging on this dilemma. Surprisingly, the theory predicts that tax rates on capital income could actually rise as the population ages, even though older individuals would be expected to own more capital than the young and thus vote against higher taxes. We then confront the key prediction of the model with panel data for ten European Union countries, over the period 1970–1996. We investigate the asymmetric effect of aging on the taxation of capital and labor. The implications of the model are shown to be consistent with panel data. JEL no. H0, H5, P1

The Wage Gap and Public Support for Social Security

Faced with aging populations, tax rates on labor income rose in most industrial countries in the 1970s and 1980s, in large part to fund burgeoning social-security systems. The growth of the welfare state coincided with increased returns to education, and thus broader wage differentials between workers with relatively high levels of skills or education and those without. This paper provides a theoretical framework which connects these phenomena. We show that the aging of the population and the return to education both affect the politicaleconomy determination of tax rates and the generosity of transfers in a democratic framework. Using panel data on the United States and nine European countries, we provide supportive empirical evidence.