Joshua Gottlieb, David Hémous, Jeffrey Hicks, Morten Olsen, The spillover effects of top income inequality, In: CEPR Discussion Papers, No. 18212, 2023. (Working Paper)
Top income inequality in the United States has increased considerably within occupations. This phenomenon has led to a search for a common explanation. We instead develop a theory where increases in income inequality originating within a few occupations can “spill over” through consumption into others. We show theoretically that such spillovers occur when an occupation provides non-divisible services to consumers, with physicians our prime example. Examining local income inequality across U.S. regions, the data suggest that such spillovers exist for physicians, dentists, and real estate agents. Estimated spillovers for other occupations are consistent with the predictions of our theory. |
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Ian Anthony Cooper, Kjell G. Nyborg, LBO Valuation Using Flows to Equity, In: Swiss Finance Institute Research Paper, No. 23-74, 2023. (Working Paper)
The flows to equity method is commonly used in leveraged buyouts and other highly levered transactions. These flows are hybrid flows, mixing expected operating cash flows with promised debt payments under a planned debt schedule. Because of this, it is difficult to accurately estimate the appropriate discount rate, a difficulty that is compounded by the typically changing leverage over time under the planned debt schedule. We show how the flows to equity approach works and discuss its benefits and drawbacks as compared with other, ‘more standard’ methods. |
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Francesco D'Ercole, Alexander Wagner, The Green Energy Transition and the 2023 Banking Crisis, In: Swiss Finance Institute Research Paper, No. 23-58, 2023. (Working Paper)
This study examines the stock price reactions of environmentally responsible stocks during the onset of the 2023 banking crisis, triggered by the collapse of Silicon Valley Bank (SVB). Our findings indicate that stocks poised to benefit from the shift to a low-carbon economy underperformed during the 2023 crisis. This suggests that investors anticipate a slowdown in climate tech development due to distress in the banking sector. Our results underscore the significance of considering not only the influence of the climate crisis on financial stability, but also the pivotal role that financial stability plays in ensuring a successful energy transition. |
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Kjell G. Nyborg, Jiri Woschitz, The price of money: The reserves convertibility premium over the term structure, In: CEPR Discussion Papers, No. 18371, 2023. (Working Paper)
Central-bank money provides utility by serving as means of exchange for virtually all transactions in the economy. New reserves (money) are issued to banks in exchange for collateral such as government bonds. An asset's degree of direct convertibility into fresh reserves may affect its utility and, consequently, its market price. We show the existence of a government-bond reserves convertibility premium, which tapers off at longer maturities. Essentially, there is a pure monetary component to some asset prices. Our findings have implications for our understanding of liquidity premia, the term structure of interest rates, and the impact of central-bank collateral policy. |
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Wu Zhu, Yucheng Yang, Networks and Business Cycles, In: SSRN, No. 3718826, 2022. (Working Paper)
The speed at which the US economy has recovered from recessions ranges from months to years. We propose a model incorporating the innovation network, the production network, and cross-sectional shocks and show that their interactions jointly explain large variations in the recovery speed across recessions in the US.
In the model, besides the production linkages, firms learn insights on production from each other through the innovation network. We show when the innovation network takes a low-rank structure, there exists one key direction: the impact a shock becomes persistent only if the shock is parallel to this key direction; in contrast, the impact declines quickly if the shock follows other directions.
Empirically, we estimate the model in a state-space form and document a set of new stylized facts of the US economy. First, the innovation network among sectors takes a low-rank structure. Second, the innovation network has non-negligible overlap with the production network. Third, recessions with slow recovery are those witnessing sizable negative shock to sectors in the center of the innovation network. Such network structures and the time-varying sectoral distribution of the shocks can well explain the large variation in the recovery speed across recessions in the US. Finally, to emphasize the prevalence of the channel, we explore the application of the theory in asset pricing. |
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Jiequn Han, Yucheng Yang, Weinan E, DeepHAM: A Global Solution Method for Heterogeneous Agent Models with Aggregate Shocks, In: SSRN, No. 3990409, 2022. (Working Paper)
We propose an efficient, reliable, and interpretable global solution method, the Deep learning-based algorithm for Heterogeneous Agent Models (DeepHAM), for solving high dimensional heterogeneous agent models with aggregate shocks. The state distribution is approximately represented by a set of optimal generalized moments. Deep neural networks are used to approximate the value and policy functions, and the objective is optimized over directly simulated paths. In addition to being an accurate global solver, this method has three additional features. First, it is computationally efficient in solving complex heterogeneous agent models, and it does not suffer from the curse of dimensionality. Second, it provides a general and interpretable representation of the distribution over individual states, which is crucial in addressing the classical question of whether and how heterogeneity matters in macroeconomics. Third, it solves the constrained efficiency problem as easily as it solves the competitive equilibrium, which opens up new possibilities for normative studies. As a new application, we study constrained efficiency in heterogeneous agent models with aggregate shocks. We find that in the presence of aggregate risk, a utilitarian planner would raise aggregate capital for redistribution less than in absence of it because poor households do more precautionary savings and thus rely less on labor income. |
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Yucheng Yang, Zhong Zheng, Weinan E, Interpretable Neural Networks for Panel Data Analysis in Economics, In: SSRN, No. 3708445, 2021. (Working Paper)
The lack of interpretability and transparency are preventing economists from using advanced tools like neural networks in their empirical research. In this paper, we propose a class of interpretable neural network models that can achieve both high prediction accuracy and interpretability. The model can be written as a simple function of a regularized number of interpretable features, which are outcomes of interpretable functions encoded in the neural network. Researchers can design different forms of interpretable functions based on the nature of their tasks. In particular, we encode a class of interpretable functions named persistent change filters in the neural network to study time series cross-sectional data. We apply the model to predicting individual's monthly employment status using high-dimensional administrative data. We achieve an accuracy of 94.5% in the test set, which is comparable to the best performed conventional machine learning methods. Furthermore, the interpretability of the model allows us to understand the mechanism that underlies the prediction: an individual's employment status is closely related to whether she pays different types of insurances. Our work is a useful step towards overcoming the "black box" problem of neural networks, and provide a new tool for economists to study administrative and proprietary big data. |
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Yucheng Yang, Yue Pang, Guanhua Huang, Weinan E, The Knowledge Graph for Macroeconomic Analysis with Alternative Big Data, In: SSRN, No. 3707964, 2020. (Working Paper)
The current knowledge system of macroeconomics is built on interactions among a small number of variables, since traditional macroeconomic models can mostly handle a handful of inputs. Recent work using big data suggests that a much larger number of variables are active in driving the dynamics of the aggregate economy. In this paper, we introduce a knowledge graph (KG) that consists of not only linkages between traditional economic variables but also new alternative big data variables. We extract these new variables and the linkages by applying advanced natural language processing (NLP) tools on the massive textual data of academic literature and research reports. As an example of potential applications, we use it as the prior knowledge to select variables for economic forecasting models in macroeconomics. Compared to statistical variable selection methods, KG-based methods achieve significantly higher forecasting accuracy, especially for long run forecasts. |
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Angelique M Blackburn, Hyemin Han, Alma Jeftic, Sabrina Stöckli, Rebekah Gelpi, Alida Maria Acosta Ortiz, Giovanni A Travaglino, Rebecca Alvarado, David Lacko, Taciano L Milfont, Stavroula Chrona, Siobhán M Griffin, William Tamayo-Agudelo, Yookyung Lee, Sara Vestergren, Predictors of Compliance with COVID-19 Guidelines Across Countries: The role of social norms, moral values, trust, stress, and demographic factors, In: PsyArXiv Preprints, No. 75jq2, 2023. (Working Paper)
Despite the devastating impacts of the COVID-19 pandemic, it provided the opportunity to investigate factors associated with compliance with public health measures that could inform responses to future pandemics. We analysed cross-country data (k = 121, N = 15,740) collected one year into the COVID-19 pandemic to investigate factors related to compliance with COVID-19 guidelines. These factors include social norms, moral values, trust, stress, and demographic factors. We found that social norms to follow preventive measures were positively correlated with compliance with local prevention guidelines. Compliance was also predicted by concern about the moral value of harm and care, trust in government and the scientific community, stress, and demographic factors. Finally, we discuss country-level differences in the associations between predictors and compliance. Overall, results indicate that the harm/care dimension of moral foundations and trust are critical to the development of programs and policies aimed at increasing compliance with measures to reduce the spread of disease. |
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Evangelos Ntontis, Angelique M Blackburn, Hyemin Han, Sabrina Stöckli, Taciano L Milfont, Jarno Tuominen, Siobhán M Griffin, Gözde Ikizer, Alma Jeftic, Stavroula Chrona, Aishath Nasheedha, Liudmila Liutsko, Sara Vestergren, The effects of secondary stressors, social identity, and social support on perceived stress and resilience: Findings from the COVID-19 pandemic, In: PsyArXiv Preprints, No. 8vk63, 2022. (Working Paper)
Primary stressors are direct outcomes of extreme events (e.g., viruses, floodwater) whereas secondary stressors stem from pre-disaster life circumstances and societal arrangements (e.g., illness, problematic pre-disaster policies) or from inefficient responses to the extreme event. Secondary stressors can cause significant long-term damage to people affected but are also tractable and amenable to change. In this study we explored the association between secondary stressors, social identity processes, social support, and perceived stress and resilience. Pre-registered analyses of data from the COVIDiSTRESS Global Survey Round II (N = 14,600; 43 countries) show that secondary stressors are positively associated with perceived stress and negatively associated with resilience, even when controlling for the effects of primary stressors. Being a woman or having lower socioeconomic status (SES) is associated with higher exposure to secondary stressors, higher perceived stress, and lower resilience. Importantly, social identification is positively associated with expected support and with increased resilience and lower perceived stress. However, neither gender, SES, or social identification moderated the relationship between secondary stressors and perceived stress and resilience. In conclusion, systemic reforms and the availability of social support are paramount to reducing the effects of secondary stressors. |
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Angelique M Blackburn, Hyemin Han, Rebekah Gelpi, Sabrina Stöckli, Alma Jeftic, Brendan Ch'ng, Karolina Koszałkowska, David Lacko, Taciano L Milfont, Yookyung Lee, Sara Vestergren, Mediation Analysis of Conspiratorial Thinking and Anti-Expert Sentiments on Vaccine Willingness, In: PsyArXiv Preprints, No. yseqz, 2022. (Working Paper)
Objective: Vaccines are an effective means to reduce the spread of diseases, but they are sometimes met with hesitancy that needs to be understood.Methods: In this study, we analysed data from a large, cross-country survey conducted between June and August 2021 in 43 countries (N = 15,740) to investigate the roles of trust in government and science in shaping vaccine attitudes and willingness to be vaccinated. Results: We found that, despite significant variability between countries, both forms of institutional trust were associated with a higher willingness to receive a COVID-19 vaccine. Further, we found that conspiratorial thinking and anti-expert sentiments predicted reduced trust in government and science, respectively, and that trust mediated the relationship between these beliefs and ultimate vaccine attitudes. Although most countries displayed similar relationships between conspiratorial thinking and anti-expert sentiments, trust, and vaccine attitudes, we identified three countries (Brazil, Honduras, and Russia) with significantly differing effects of these variables. Conclusions: We discuss and propose various additional local factors that future research should consider to understand how trust and attitudes towards governmental and scientific institutions may shape individuals’ ultimate vaccine attitudes and decisions. |
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Hyemin Han, Angelique M Blackburn, Alma Jeftic, Thao Phuong Tran, Sabrina Stöckli, Jason Reifler, Sara Vestergren, Validity Testing of the Conspiratorial Thinking and Anti-Expert Sentiment Scales during the COVID-19 Pandemic Across 24 Languages from a Large-Scale Global Dataset, In: PsyArXiv Preprints, No. q3rkj, 2021. (Working Paper)
In this study, we tested the validity across two scales addressing conspiratorial thinking that may influence behaviors related to public health and the COVID-19 pandemic. Using the COVIDiSTRESSII Global Survey data from 12,261 participants, we validated the 4-item Conspiratorial Thinking Scale and 3-item Anti-Expert Sentiment Scale across 24 languages and dialects that were used by at least 100 participants per language. We employed confirmatory factor analysis, measurement invariance test, and measurement alignment for internal consistency testing. To test convergent validity of the two scales, we assessed correlations with trust in seven agents related to government, science, and public health. Although scalar invariance was not achieved when measurement invariance test was conducted initially, we found that both scales can be employed in further international studies with measurement alignment. Moreover, both conspiratorial thinking and anti-expert sentiments were significantly and negatively correlated with trust in all agents. Findings from this study provide supporting evidence for the validity of both scales across 24 languages for future large-scale international research. |
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Andreas Lieberoth, Shiang-Yi Lin, Sabrina Stöckli, Hyemin Han, Marta Kowal, Stavroula Chrona, Rebekah Gelpi, Thao Phuong Tran, Alma Jeftic, Huseyin Cakal, Taciano L Milfont, Jesper Rasmussen, Stress and worry in the 2020 coronavirus pandemic: Relationships to trust and compliance with preventive measures across 48 countries in the COVIDiSTRESS global survey, In: PsyArXiv Preprints, No. f7ghw, 2021. (Working Paper)
The COVIDiSTRESS global survey collects data on early human responses to the 2020 COVID-19 pandemic from 173,429 respondents in 48 countries. The open science study was co-designed by an international consortium of researchers to investigate how psychological responses differ across countries and cultures, and how this has impacted behaviour, coping and trust in government efforts to slow the spread of the virus. Starting in March 2020, COVIDiSTRESS leveraged the convenience of unpaid online recruitment to generate public data. The objective of the present analysis is to understand relationships between psychological responses in the early months of global coronavirus resreictions, and help understand how different government measures succeed or fail in changing public behaviour. There were variations between and within countries. Although Western Europeans registered as more concerned over COVID-19, more stressed, and having slightly more trust in the governments’ efforts, there was no clear geographical pattern in compliance with behavioural measures. Detailed plots illustrating between-countries differences are provided.Using both traditional and Bayesian analyses, we found that individuals who worried about getting sick worked harder to protect themselves and others. However, concern about the coronavirus itself did not account for all of the variance in experienced stress during the early months of coronavirus restrictions. More alarmingly, such stress was associated with less compliance. Further, those most concerned over the coronavirus trusted in government measures primarily where policies were strict. While concern over a disease is a source of mental distress, other factors including strictness of protective measures, social support, and personal lockdown conditions must also be taken into consideration to fully appreciate the psychological impact of COVID-19 and to understand why some people fail to follow behavioral guidelines intended to protect themselves and others from infection. |
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Ernst Fehr, Thomas Epper, Julien Senn, The fundamental properties, stability and predictive power of distributional preferences, In: Working paper series / Department of Economics, No. 439, 2023. (Working Paper)
Parsimony is a desirable feature of economic models but almost all human behaviors are characterized by vast individual variation that appears to defy parsimony. How much parsimony do we need to give up to capture the fundamental aspects of a population’s distributional preferences and to maintain high predictive ability? Using a Bayesian nonparametric clustering method that makes the trade-off between parsimony and descriptive accuracy explicit, we show that three preference types—an inequality averse, an altruistic and a predominantly selfish type—capture the essence of behavioral heterogeneity. These types independently emerge in four different data sets and are strikingly stable over time. They predict out-of-sample behavior equally well as a model that permits all individuals to differ and substantially better than a representative agent model and a state-of-the-art machine learning algorithm. Thus, a parsimonious model with three stable types captures key characteristics of distributional preferences and has excellent predictive power. |
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David Hémous, Simon Lepot, Thomas Sampson, Julian Schaerer, Trade, innovation and optimal patent protection, In: CEPR Discussion Papers, No. 18598, 2023. (Working Paper)
This paper provides a first comprehensive quantitative analysis of optimal patent policy in the global economy. We introduce a new framework, which combines trade and growth theory into a tractable tool for quantitative research. Our application delivers three main results. First, the potential gains from international cooperation over patent policies are large. Second, only a small share of these gains has been realized so far. And third, the WTO’s TRIPS agreement has been counterproductive, slightly reducing welfare in the Global South and for the world. Overall, there is substantial scope for policy reform. |
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Clement E Bohr, Charles A Holt, Alexandra Victoria Schubert, A behavioral study of Roth versus traditional retirement savings accounts, In: Working paper series / Department of Economics, No. 440, 2023. (Working Paper)
Motivated by a popular perception that Roth accounts are welfare-improving for most people, this paper compares the effects of mandated Traditional (tax-deferred) or Roth (taxprepaid) retirement policies in a controlled laboratory setting. Selection effects, which complicate analyses of observational data, are avoided by random assignment to policies. Subjects receive exogenous incomes during “working” periods, followed by no-income “retirement” periods. In each period, subjects decide how many lab dollars to convert into “takehome pay,” akin to consumption with diminishing returns. Subjects’ decisions determine retirement savings and tax payments. Flat income and tax-rate profiles facilitate the analysis of behavioral factors like present-period tax avoidance, while optimal consumption and after-tax savings are identical for both treatments. Our results show that observed savings are suboptimal in both treatments and are influenced by gender, patience, and risk aversion measures. In contrast to conventional wisdom, there are no significant differences between policies; if anything, the Traditional treatment leads to marginally higher post-retirement consumption. |
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Bruno Caprettini, Hans-Joachim Voth, Wages and the Great War: evidence from the largest draft lottery in history, In: Working paper series / Department of Economics, No. 441, 2023. (Working Paper)
Do veterans earn less? During WW I, the US organized “the greatest human lottery in history”: a random draft of 24 million men. Ultimately, 2.8 million Americans were selected to join the armed forces. We sample 10% of registrants of the 1917 lottery and match these men with the 1930 and 1940 US Federal Censuses. Low lottery numbers significantly increased the likelihood of serving in World War I. Importantly, military service also had a positive causal effect on earnings and occupational outcomes. Veterans joined professions with higher cognitive skill requirements, including higher intelligence, language, reasoning, and math requirements. Randomly-assigned military service had fundamentally different effects during World War I than in Vietnam. We rationalize this finding by analyzing complier characteristics. |
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Silja Häusermann, Simon Bornschier, Democratic conflict and polarization, In: UBS Center Public Paper Series, No. 14, 2023. (Working Paper)
Several developments in Western democracies over the past decade have sparked worries about political stability. Standing out are the rise of radical political parties, heated polarization around questions of immigration, nationalism, or social liberalism, and – in some cases – attacks on democratic institutions. However, conflict and choice between clearly distinctive alternative ideas of how societies and economies should be governed are at the heart of democracy. Democracy needs competition and conflict. But where is the line between healthy and harmful conflict and polarization?
In this paper, Silja Häusermann and Simon Bornschier explain that an interpretation of today’s state of democratic conflict as chaotic, fragmented, or volatile is misleading. Rather, Western democracies are in a process of a fundamental restructuring of the main political dividing lines. Over the past decades a new social cleavage has been emerging between universalistic and particularistic ideas of social, economic, and political organization, between openness and closure. This conflict is rooted in social groups defined by education, occupation, and territory. It relates to underlying collective identities on both sides, and it will dominate democratic party competition for the foreseeable future. It is not per se harmful to democracy but reflects genuinely different visions of desirable social order. However, under certain conditions, it can turn on democracy itself.
The authors thus examine the functional and dysfunctional implications of polarized political conflict for democracy. To what extent is conflict and polarization healthy and under what conditions is it likely to endanger the very legitimacy and institutional stability of democracies? Building on existing knowledge about the dynamics of polarization, they discuss political and institutional means to contain polarization and to protect democratic stability. |
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Diane Bolet, Florian Foos, Media platforming and the normalisation of extreme right views, In: URPP Equality of Opportunity Discussion Paper Series, No. 22, 2023. (Working Paper)
As far right views are increasingly becoming socially acceptable, it remains unclear under what conditions the media contribute to this normalisation process. Drawing on two pre-registered, placebo-controlled survey experiments that use the real-world audio of interviews with extreme right actors in Australia and Britain, we find that platforming extreme right actors on either the TV channel Sky News or the online platform Youtube fuels agreement with extreme right statements and leads participants to believe that a larger share of the population supports extreme right views. Interviewers’ strategies of engaging with extreme right actors matter: While unchallenged interviews consistently result in the radicalisation of participants’ attitudes and beliefs, interviewers who challenge the accuracy of the false statements made, mitigate attitudinal effects and lower normalisation effects. While platforming affects beliefs, we find that exposure backfires on the rating of the actor who advocates for those beliefs, especially in the critical interview condition. |
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Sebastián Bustos, Dina Pomeranz, Juan Carlos Suárez Serrato, José Vila-Belda, Gabriel Zucman, The race between tax enforcement and tax planning: evidence from a natural experiment in Chile, In: URPP Equality of Opportunity Discussion Paper Series, No. 21, 2023. (Working Paper)
Profit shifting by multinational corporations is thought to reduce tax revenue around the world. While transfer pricing regulations are meant to curtail profit shifting, there have been rising concerns that a sophisticated tax advisory industry can limit their effectiveness. This paper provides a comprehensive analysis of how firms and tax advisors respond to the introduction of standard regulations aimed at limiting profit shifting. Using administrative tax and customs data from Chile in difference-in-differences event-study designs, we find that the reform was ineffective in reducing multinationals’ transfers to lower-tax countries and did not significantly raise tax payments. At the same time, interviews with tax advisors reveal a drastic increase in tax advisory services. The qualitative interviews also allow us to identify and then quantitatively confirm a common tax planning strategy in response to the reform. These results illustrate that when enforcement can be circumvented by sophisticated tax planning, it can benefit tax consultants at the expense of tax authorities and taxpayers. |
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