Flip-Flopping: Ideological Adjustment Costs in the United States Senate

Models of electoral competition in which candidates can change position at no cost predict the convergence of platforms in a two-candidate election. Such convergence is at odds with empirical observation. In this paper, I undertake a study of candidate positioning in the United States Senate and determine the extent to which electoral costs associated with changing position explain the ideological positions taken by Senators. Using over 50 years of roll call voting data, I use a simulated method of moments approach to estimate a dynamic model of candidate positioning for U.S. Senators. The findings support a model in which Senators face convex costs to changing position, with the best fitting model being one with linear costs of adjustment. The model thus predicts severe punishments for “flip-flopping” Senators (those who make large changes in position). As a result of the significant costs associated with adjusting position, the empirical validity of the Median Voter Theorem (which depends upon candidates being able to change position at no cost) is called into question.spatial models, dynamic political economy, Senate, ideology

Importing Corruption Culture from Overseas: Evidence from Corporate Tax Evasion in the United States

This paper studies how cultural norms and enforcement policies influence illicit corporate activities. Using confidential IRS audit data, we show that corporations with owners from countries with higher corruption norms engage in higher amounts of tax evasion in the U.S. This effect is strong for small corporations and decreases as the size of the corporation increases. In the mid-2000s, the United States implemented several enforcement measures which significantly increased tax compliance. However, we find that these enforcement efforts were less effective in reducing tax evasion by corporations whose owners are from countries with higher corruption norms. This suggests that cultural norms can be a challenge to legal enforcement.

It's who you are and what you do: explaining the IT industry wage premium

The information technology (IT) boom dramatically boosted the rapid growth of the U.S. economy during the 1990s, contributing 1.4 percentage points of the 4.6 percent national average real gross domestic product growth from 1996 to 2000. As the IT boom went bust in 2001, however, the IT sector’s influence on the economy dwindled. ; But a lingering effect of the IT boom may still be apparent in the wages of IT workers. This article explores the extent to which variations in wages between IT-producing and non-IT industries can be accounted for by differences in wages paid to IT-related occupations. ; Using data for 1996 to 2002 from the Current Population Survey’s Earner Study, the authors study a sample of more than 845,000 U.S. workers aged eighteen to sixty-four. The sample is categorized according to individuals’ primary job and is divided into nine industry groups—three IT-related and six non-IT-related. ; The analysis shows that the average wage of IT occupations is greater than for non-IT occupations irrespective of industry. Individual worker characteristics such as years of education may account for some of this wage differential. But even after such characteristics and occupational differences are controlled for, workers in IT-producing industries still enjoy a wage premium over workers in other sectors.

Flip-Flopping: Ideological Adjustment Costs in the United States Senate

Models of electoral competition in which candidates can change position at no cost predict the convergence of platforms in a two-candidate election. Such convergence is at odds with empirical observation. In this paper, I undertake a study of candidate positioning in the United States Senate and determine the extent to which electoral costs associated with changing position explain the ideological positions taken by Senators. Using over 50 years of roll call voting data, I use a simulated method of moments approach to estimate a dynamic model of candidate positioning for U.S. Senators. The findings support a model in which Senators face convex costs to changing position, with the best fitting model being one with linear costs of adjustment. The model thus predicts severe punishments for “flip-flopping” Senators (those who make large changes in position). As a result of the significant costs associated with adjusting position, the empirical validity of the Median Voter Theorem (which depends upon candidates being able to change position at no cost) is called into question

Flip-Flopping: Ideological Adjustment Costs in the United States Senate

Models of electoral competition in which candidates can change position at no cost predict the convergence of platforms in a two-candidate election. Such convergence is at odds with empirical observation. In this paper, I undertake a study of candidate positioning in the United States Senate and determine the extent to which electoral costs associated with changing position explain the ideological positions taken by Senators. Using over 50 years of roll call voting data, I use a simulated method of moments approach to estimate a dynamic model of candidate positioning for U.S. Senators. The findings support a model in which Senators face convex costs to changing position, with the best fitting model being one with linear costs of adjustment. The model thus predicts severe punishments for “flip-flopping” Senators (those who make large changes in position). As a result of the significant costs associated with adjusting position, the empirical validity of the Median Voter Theorem (which depends upon candidates being able to change position at no cost) is called into question

Micro-founded tax policy effects in a heterogenenous-agent macro-model

Microsimulation models are increasingly used to calibrate macro models for tax policy analysis. Yet, their potential remains underexploited, especially in order to represent the non-linearity of the tax and social benefit system and interactions between capital and labour incomes which play a key role to understand behavioural effects. Following DeBacker et al. (2018b) we use a microsimulation model to provide the output with which to estimate the parameters of bivariate non-linear tax functions in a macro model. In doing so we make marginal and average tax rates bivariate functions of capital income and labour income. We estimate the parameters of tax functions in order to capture the most important non-linearities of the actual tax schedule, together with interaction effects between labour and capital incomes. To illustrate the methodology, we simulate a reduction in marginal personal income tax rates in Italy with a microsimulation model, translating the microsimulation results into the shock for a dynamic overlapping generations model. Our results show that this policy change affects differently households distinguished by age and ability type.JRC.B.2 - Fiscal Policy Analysi

Taxing income or consumption: macroeconomic and distributional effects for Italy

We study a set of tax reforms introducing a budget-neutral tax shift in Italy, from labour income to consumption taxes. To this end we use a microsimulation model to provide the output with which to estimate the parameters of tax functions in an overlapping-generations computable general equilibrium model. In doing so we make marginal and average tax rates bivariate non-linear functions of capital income and labour income. The methodology allows for the representation of the non-linearities of the tax and social benefit system and interactions between capital and labour incomes. The linked macro model then simulates labour supply, consumption and savings in a dynamic setting, thus accounting for behavioural and general equilibrium effects within a life-cycle optimization framework. Our simulations show that a tax shift made by cutting personal income tax rates might bring significant efficiency gains in Italy, with limited regressive effects notwithstanding the revenue-compensating increase in consumptions taxes.JRC.B.2 - Fiscal Policy Analysi

EDGE-M3: A Dynamic General Equilibrium Micro-Macro Model for the EU Member States

This paper provides a technical description of the overlapping generations model used by the Joint Research Centre to analyse tax policy reforms, including in particular pension and demographic issues. The main feature of the EDGE-M3 model lies in its high level of disaggregation and the close connection between microeconomic and macroeconomic mechanisms which makes it a very suitable model to analyse the redistributive impact of policies. EDGE-M3 features eighty generations and seven earnings-ability types of individuals. To facilitate a realistic dynamic population structure EDGE-M3 includes Eurostat's demographic projections. In terms of calibration, the EDGE-M3 family of overlapping generations models is heavily calibrated on microeconomic data. This allows the introduction of the underlying individuals' characteristics in a macro model to the greatest extent possible. In particular, it includes the richness of the tax code by means of income tax and social insurance contribution rate functions estimated using data from the EUROMOD microsimulation model. This feature allows in particular a close connection between the macro and the micro model. In addition, the earnings profiles of the seven heterogeneous agent types are estimated using survey data. Finally, the labour supply, bequests and consumption tax calibration are all done using detailed microeconomic data, making the model highly suitable for the analysis of intra- and intergenerational analysis of tax policy.JRC.B.2 - Fiscal Policy Analysi