Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It's All Hebrew (and Aramaic) to Me
In this comment, we take a helicopter tour of the history of notions of ?equality? and ?justice? in sovereign debt restructuring in particular, and in the division of property more generally, and show that these concerns have existed for centuries, if not millennia. We argue that the issue at stake in the interpretation of the pari passu clause is not so much the treatment of holders of identical claims?it is now customary to treat them identically?but whether the holders of different claims should be treated differently. We show that exists a customary ?principle of differentiation? that ...
On the Optimality of Differential Asset Taxation
How should a utilitarian government balance redistributive concerns with the need to provide incentives for business creation and investment? Should they tax business profits, the (risk-free) savings of owners, or some combination of both? To address this question, this paper presents a model in which the desirability of differential asset taxation emerges endogenously from the presence of agency frictions. I consider an environment in which entrepreneurs hire workers and rent capital to produce output subject to privately observed shocks and have the ability to both divert capital to private ...
The Illusion of School Choice: Empirical Evidence from Barcelona
School choice aims to improve (1) the matching between children and schools and (2) students? educa-tional outcomes. Yet, the concern is that disadvantaged families are less able to exercise choice, which raises (3) equity concerns. The Boston mechanism (BM) is a procedure that is widely used around the world to resolve overdemands for particular schools by defining a set of priority points based on neigh-borhood and socioeconomic characteristics. The mechanism design literature has shown that under the BM, parents may not have incentives to provide their true preferences, thereby ...
Income inequality and political polarization: time series evidence over nine decades
Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by the multiple factors that drive each of these phenomena, potential feedbacks between inequality and polarization, measurement issues, and statistical challenges for modeling non-stationary variables. We find that a more precise measure of inequality (the inverted Pareto-Lorenz coefficient) is statistically related to polarization while a less precise one (top 1% income share) is not, and that there are bi-directional ...
Inequality in the Time of COVID-19: Evidence from Mortgage Delinquency and Forbearance
Using a novel database that combines mortgage servicing records, credit-bureau data, and loan application information, we show that lower-income and minority borrowers have signiﬁcantly higher nonpayment rates during the COVID-19 pandemic, even after controlling for conventional risk factors. A difference-in-differences analysis shows how much the pandemic has exacerbated income and racial inequalities. We then find that government and private-sector forbearance programs have mitigated these inequalities in the near term, as lower-income and minority borrowers have taken up the short-term ...
College Is Not Enough: Higher Education Does Not Eliminate Racial and Ethnic Wealth Gaps
Differences in college and post-graduate degree attainment alone explain less than half of Black-White and Hispanic-White wealth gaps in a standard wealth regression. Differences in family structure and measures of luck such as income windfalls and inheritances explain even less. Measures of financial decisionmaking, such as the share of housing in total assets and debt ratios, are much more important.
The Optimal Taxation of Business Owners
Business owners in the United States are disproportionately represented among the very wealthy and are exposed to substantial idiosyncratic risk. Further, recent evidence indicates business income primarily reflects returns to the human (rather than financial) capital of the owner. Motivated by these facts, this paper characterizes the optimal taxation of income and wealth in an environment where business income depends jointly on innate ability, luck, and the accumulated past effort exerted by the owner. I show that in (constrained) efficient allocations, more productive entrepreneurs ...
Accounting for racial wealth disparities in the United States
Using data from the Survey of Consumer Finances, this paper updates and extends previous research on the racial wealth gap in the United States. We explore several hypotheses that help explain differential wealth accumulation by racial groups, including the importance of receiving inheritances and other financial support from relatives and the conditions in local real estate markets. By exploring the disparities among white, black, and Hispanic families, we make new contributions to the literature. We find that observable factors account for the entire wealth gap between white and Hispanic ...
A Comparison of Living Standards Across the States of America
We use an expected utility framework to examine how living standards vary across the United States and how each state's living standards have evolved over time. Our welfare measure accounts for cross-state variations in mortality, consumption, education, inequality, and cost of living. We find that per capita income is a good indicator of living standards, with a correlation of 0.80 across states. Living standards in most states, however, appear closer to those in the richest states than their difference in per capita income would suggest. Whereas high-income states benefit from higher life ...
The Well-Being of Nations: Estimating Welfare from International Migration
The limitations of GDP as a measure of welfare are well known. We propose a new method of estimating the well-being of nations. Using gross bilateral international migration flows and a discrete choice model in which everyone in the world chooses a country in which to live, we estimate each country?s overall quality of life. Our estimates, by relying on revealed preference, complement previous estimates of economic well-being that consider only income or a small number of factors, or rely on structural assumptions about how these factors contribute to wellbeing.