First half pub pol brief
.pdf
School
Texas Tech University**We aren't endorsed by this school
Course
FIN 3319
Subject
Economics
Date
Dec 18, 2024
Pages
5
Uploaded by ProfessorTurtlePerson3589
Okay, here's a detailed briefing document synthesizing the provided sources, focusing on keythemes and ideas, with direct quotes included where relevant:Briefing Document: Economic Policy & Social IssuesI. Core Economic PrinciplesBudgets as Policy:"Budgets are a reflection of policy priorities." This underscores thefundamental idea that fiscal decisions are not just about numbers but reflect a society'svalues and goals.Trade-offs:Public spending involves crucial trade-offs:Efficiency Costs:"Taxation can create distortions" in the market, leading to a "deadweightloss" or "excess burden."Opportunity Costs:"What else could we have spent scarce public funding on?" Everyspending decision means foregoing other possibilities.Equity vs. Efficiency:There is a constant tension between using taxes and transfers toreduce inequality (equity) and the potential for taxes to create inefficiencies (efficiency) bydiscouraging work.Market Failures:These justify government intervention. Key failures include:Public Goods:Goods that are non-rival (one person's consumption doesn't reduceanother's) and non-excludable (difficult to prevent consumption), like "fireworks, light from alighthouse."Externalities:Costs or benefits not reflected in market prices, such as "pollution" or "climatechange."Imperfect Competition:E.g., monopolies, where a single firm controls the market.Imperfect/Asymmetric Information:One party has more information than the other, suchas in "health insurance markets," leading to adverse selection."Individual Failures":People may act irrationally, such as with "myopic savings."Mixed Economy:The US is a "mixed economy" with both private and public sectors playingmajor roles. "Government intervention necessary to 'solve problems markets can't solve ontheir own.'"Government Successes & Market Successes: The government can overcome underprovision of public goods, provide infrastructure, and invest in human capital througheducation, Market success is driven by "competition, self-interest drive grow -> efficiency",with "strong incentives/rewards" for innovation.II. Key Macroeconomic ConceptsGDP & National Income:GDP:"Total value of all finished goods + services within a county."National Income (GNI):"Total value of domestic & foreign income by residents of a country,"calculated as GDP plus "income earned abroad - income foreign residents earn and sendabroad."Normative vs. Positive Economics:Normative:"how things should be..." e.g., "we should provide health care."Positive:"how things are..." e.g., "providing healthcare improves health."Taxes:Federal:Primarily "individual income tax" (progressive), "corporate income tax"(progressive), and "payroll taxes" (regressive). Also, "estate, excise, other taxes."State & Local:Individual & corporate income, sales and excise, and property taxes.Tax Incidence:"Statutory incidence" is who pays the tax, while "economic incidence" is whobears the actual burden. This is influenced by elasticity. "More inelastic side bears theburden of the tax."
Deadweight Loss:Efficiency costs of taxes grow with the square of the tax rate.Optimal Taxation:Balancing revenue generation and minimizing distortions. The optimal taxrate depends on the "elasticity of labor supply;" more elastic the labor supply means a loweroptimal tax rate and vice versa.Progressivity:Taxes are progressive if the share paid rises with income; regressive if theshare falls with income. US tax system is progressive but has become less so in recentdecades.Government Spending:Mandatory:"Spending on programs for which funding levels areautomatically set by # of eligible recipients," e.g., Social Security and Medicare.Discretionary:"Optional" spending set by appropriation levels each year, e.g., defense,education.Debt & Deficit:Debt:"Amount borrowed by the government through bonds" (a stock).Deficit:Government spending + interest - revenues (a flow, typically per year).Deficit spending can act as a short-term "stabilization" tool and can have "automaticstabilization" effects like unemployment insurance which fluctuate with the economic cycle. Inthe long run, deficits can lead to "capital market crowd out"Elasticity:"% change in quantity when price changes by 1 %"Elastic:Absolute value greater than 1Inelastic:Absolute value less than 1.Real vs Nominal Dollars:Nominal: contemporaneous monetary valueReal: takes inflation into account (reflecting purchasing power).III. Inequality & MobilityMeasuring Inequality:Gini Coefficient:A single number between 0 (perfect equality) and 1(perfect inequality) to represent income distribution.Percentile Ratios:E.g., P90/P10 ratio and income shares by percentile.Drivers of Inequality:Globalization, "superstar firms," growth in investment income, andpublic policies such as minimum wage, "opportunity hoarding", tax policy (preferential taxpolicy for capital gains, dividends, rent), higher spending on elderly, low-quality public goods,and overprotecting intellectual property rights.Productivity vs. Inequality:Cowen argues that a "productivity slowdown is a biggerproblem than inequality." He cites that had productivity not slowed after 1973 the medianhousehold income would be $30k higher versus only $91 if inequality had not grown.Absolute vs. Relative Inequality:Absolute disparities focus on poverty levels; relativedisparities focus on differences in incomes.Intergenerational Mobility (IGM):Compares adult economic outcomes to childhoodcircumstances. Measured by "intergenerational elasticity of income (IGE)." Higher IGEmeans less mobility. The "Great Gatsby Curve" shows a correlation between inequality andmobility.Spatial Aspects of Mobility:High mobility areas tend to have "less residential segregation;lower income inequality," better schools, more social capital, and greater family stability.Place matters, and those who move to better neighborhoods have better outcomes,especially when moved at younger ages, though some of the effects of "better" places arecapitalized into rent prices.
Neighborhood Effects:There are "large differences in outcomes across neighborhoodswithin cities." These effects can be causal, but also some non-causal correlations. Someplaces are better for white children than black children.IV. Place-Based PoliciesMotivation:To improve conditions in specific areas and/or the outcomes of thoseliving/working there. Also, to enhance "area advantages".Agglomeration Effects:"Workers/ firms more productive when surrounded by others,"leading to "economies of scale," lower transportation costs, and "knowledge spillovers."Potential Downsides:"Mobility and capitalization responses" can dilute policy effects.Place-based policies might create “winners and losers.”Examples:Enterprise Zones:Subsidies or tax breaks to incentivize business in particularareas. Mixed evidence, with some evidence of positive employment effects from"Empowerment Zones".Moving to Opportunity (MTO):Randomized experiment using housing vouchers toencourage moves to lower-poverty areas, yielding better health and mental health outcomesand large effects on earnings for kids who moved at younger ages.V. Social Safety Net & Labor Market PoliciesSafety Net Rationale:Equity:Transfers to low-income families.Investments:Improve longer-run outcomes, especially for children.Automatic Stabilizers:Benefits increasing during recessions.Key Programs:SNAP:(Food Stamps) Provides food purchasing benefits.TANF:Cash and non-cash benefits to families with children.SSI:Cash assistance to seniors and people with disabilities.EITC:Earned Income Tax Credit which acts to incentivize low-income workers, but may notincentivize more work.Equity vs. Efficiency (Safety Nets):A key design issue is balancing equity and efficiency,particularly considering work disincentives.Transfer Design:How to design safety nets for optimal equity and efficiency (moral hazard,bunching).G (guarantee): amount to family /zero incomeM (max): max benefitS (subsidy rate): rate transfer grows as earnings riseP (phase out): highest earnings to recieveT (tax rate): rate at which transfer reduced for earnings above certain point.Cash vs. In-Kind Transfers:In-kind transfers (like food stamps) are sometimes favored forpaternalistic reasons, but cash offers more flexibility. The more unrestricted the transfer, thesmaller the distortion.Unemployment Insurance (UI):Provides a safety net for displaced workers. May createmoral hazard and extend the duration of unemployment.Disability Insurance (DI):Payments to those unable to work, a concern is that DI is an"absorbing state" where people never get off.Minimum Wage:Theoretical Concern: Decreases employment, but empirical evidence ismixed.Card-Krueger's study found no impact. Some evidence of larger effects for large changes orin tradable sectors. There can also be some pass through of higher prices to consumers.VI. Health Insurance & Outcomes
Asymmetric Information:Adverse Selection:Those with higher health costs are morelikely to purchase insurance, creating a challenge for insurers.Moral Hazard:People may change behavior after being insured, consuming morehealthcare.Oregon Health Experiment:Expansion of Medicaid through lottery, showed increasedhealthcare utilization, improvements in self-reported health and mental health, and reducedfinancial hardship, with no significant effects on physical health.US System:Includes public (Medicare, Medicaid) and private options, with significantuninsured populations.Racial Disparities:Significant disparities in health outcomes (e.g., obesity, mortality) linkedto economic factors, physical environment, access to healthcare, biases, and healthbehaviors.Mortality & Life Expectancy:Mortality:Measured as a rate.Life Expectancy:How long a hypothetical person is expected to live given currentage-specific mortality rates.Mortality Gradient:A mortality gradient exists by income and education. Declining mortalityamong college-educated versus increasing mortality among the less-educated. There areconcerns over the causes of these trends: technical changes in the labor market,globalization, declining real wages, and social factors.Political polarization:Strong correlation between "deaths of despair" and republican voteshare.VII. Research MethodsCausality:The key idea is the need for "counterfactuals" (what would have happenedwithout a treatment/intervention).Average Treatment Effect (ATE):Under random assignment.Intent to Treat (ITT):When there is imperfect compliance.Treatment on the Treated (TOT):When perfect compliance, but can be used with IVs.Differences-in-Differences (DiD):A quasi-experimental design that compares changesbetween treatment and control groups before and after a treatment, with the assumption of"parallel trends."Regression:A way of describing relationships in data but whether regression is causaldepends if assumptions for causal inference are met.Instrumental Variables (IV):Used when endogeneity exists to try and isolate the treatmentof interest.Regression Discontinuity (RD):Used when there is a discontinuous change in treatmentacross a threshold with the assumption that all else is smooth."Bunching" Design:Used in policy evaluations when there is a discrete change in aparameter used to influence behavior.VIII. Algorithm BiasAlgorithms can exhibit bias even if race is excluded as an input, because other correlatedfactors can act as "proxies" for race.Can be a problem in many settings including health, job searching, and policing.IX. Key TakeawaysEconomic policy involves balancing competing goals (e.g., efficiency, equity).Markets have failures that necessitate government intervention.Many factors affect economic inequality and mobility, with policy having a crucial role.
Place matters for economic opportunity, with disparities existing across and within localities.Social safety nets serve essential equity and stabilization roles, but require careful design.Health insurance markets suffer from issues of asymmetric information, which policy mustaddress.There are racial disparities in health outcomes, with complex causes.This briefing document should provide a strong overview of the core concepts and issues covered inthe source materials. It is designed to help you understand the material in-depth. Let me know if youhave any other questions!