Social Mobility in China

Cathy Gong, Xin Meng and I have a new paper out, looking at intergenerational mobility in urban China. After making a bunch of adjustments to the data, we find a strikingly high intergenerational elasticity (implying a very low level of social mobility). The abstract is below – click on the title for the full paper.

Intergenerational Income Mobility in Urban China
This paper estimates the intergenerational income elasticity for urban China, paying careful attention to the potential biases induced by income fluctuations and life cycle effects. Our preferred estimates are that the intergenerational income elasticities are 0.74 for father-son, 0.84 for father-daughter, 0.33 for mother-son, and 0.47 for mother-daughter. This suggests that while China has experienced rapid growth of absolute incomes, the relative position of children in the distribution is largely determined by their parents’ incomes. Investigating possible causal channels, we find that parental education, occupation, and Communist Party membership all play important roles in transmitting economic status from parents to children.

Mexican antipoverty program might work in the US too

Don Arthur alerts me to a new report from MDRC (the organisation that administers many of the US randomised trials) on Opportunity NYC, a conditional cash transfer program in New York city that’s based loosely on the Mexican Progresa/Oportunidades program. Here’s the overview:

Continue reading “Mexican antipoverty program might work in the US too”

What’s the Evidence on Evidence Based Policy?

Last year, the Productivity Commission ran an event on the topic ‘Strengthening Evidence-based Policy in the Australian Federation’, of which I was one of the participants (my contribution was titled: ‘Evidence-based policy: summon the randomistas?’). The PC has now produced a mighty two-volume set, which is also available on their website. If you’re short on time, go to the background report (volume two), which is likely to become a standard reference for anyone thinking about evidence-based policy in Australia. We’ll see if George Pell gets around to reading Appendix A.

Sin Tax Error?

My AFR op-ed today is on tobacco and alcohol taxes. Full text over the fold. Some references are hyperlinked, and there’s more detail at the end of the piece.

Continue reading “Sin Tax Error?”

Of stockmarkets and supermarket queues

My Wryside Economics segment today was on investing in the sharemarket. I discussed Burton Malkiel’s classic A Random Walk Down Wall Street, and the merits of index funds. If you’re not a regular ABC Radio National listener, you can find the audio here.

Understanding Tax Evasion

As regular blog readers will know, I’m a big fan of randomisation. In the context of tax audits, this is particularly useful. Though politically controversial, random audit experiments like the US TCMP have taught us a lot about who underreports tax. And now a new two-stage experiment in Demark is revealing other lessons. Perhaps Australia – which has never had a random audit of personal income taxpayers – could follow suit.

Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark (gated stable link, ungated unstable link)
Henrik Kleven, Martin Knudsen, Claus Kreiner, Soren Pedersen and Emmanuel Saez
This paper analyzes a randomized tax enforcement experiment in Denmark.  In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment.  Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited.  The following year, "threat-of-audit" letters were randomly assigned and sent to tax filers in both groups.    Using comprehensive administrative tax data, we present four main findings.  First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income.  Since 95% of all income is third-party reported, the overall evasion rate is very modest.  Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses.  Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit.    Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter.  All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes.

Does Mum’s Age Matter?

Xiaodong Gong and I have a paper in the latest issue of the Australian Economic Review. Abstract below.

Does Maternal Age Affect Children’s Test Scores?
Andrew Leigh and Xiaodong Gong
We estimate the relationship between maternal age and child outcomes, using indices aimed at measuring overall outcomes, learning outcomes and social outcomes. In all cases,we find evidence that children of older mothers have better outcomes. Not only do children born to mothers in their twenties do better than children born to teen mothers, but children born to mothers in their thirties do better than children born to mothers in their twenties. However, when we control for other socioeconomic characteristics, such as family income, parental education and single parenthood, the coefficients on maternal age become small and statistically insignificant. The only exception is an index of social outcomes, which is positively associated with maternal age, even controlling for socioeconomic factors. For cognitive outcomes, young motherhood appears to be a marker, not a cause, of poor child outcomes.

An easy way to see the result is to compare the relationship between maternal age and child outcomes first without any socioeconomic controls:


(strong positive relationship, mostly statistically significant)

…and then with socioeconomic controls:


(virtually no relationship, generally statistically insignificant).