Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, June 5, 2015

AI Summary. Top marginal tax rates are associated with where the top 1% of "superstar" inventors choose to locate, with an estimated elasticity to the net-of-tax rate of 0.04–0.06 for domestic inventors and about 1.3 for foreign ones. The authors estimate a 10 percentage point cut in top tax rates would retain 1% more domestic and attract 38% more foreign superstar inventors.

Ufuk Akcigit, Salomé Baslandze and Stefanie Stantcheva National Bureau of Economic Research
Date Posted:
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Top tax rates significantly influence where “superstar” inventors locate, with a 10% decrease in top tax rates potentially retaining 1% more domestic and attracting 38% more foreign inventors.

Do top tax rates influence where star inventors locate?

Core argument: Using US and European Patent Office data since 1977, the study estimates the elasticity of foreign superstar inventors' location to the net-of-tax rate at roughly 1.3, versus 0.04–0.06 for domestic inventors.

The study examines the impact of top tax rates on inventors' mobility since 1977, focusing on "superstar" inventors with the most valuable patents. Using data from US and European Patent Offices, it finds that top 1% inventors are significantly influenced by top tax rates when deciding where to locate. The elasticity of domestic inventors to the net-of-tax rate is small, between 0.04 and 0.06, while for foreign inventors it is much larger, around 1.3. A 10 percentage point decrease in top tax rates could retain 1% more domestic and attract 38% more foreign superstar inventors. Inventors in multinational companies are more likely to exploit tax differentials, whereas those in firms with a higher share of research in a country are less sensitive to tax rates. The findings highlight the importance of tax policy in shaping the global distribution of top talent.

Takeaways by Macro Roundup® AI

  1. Using US and European Patent Office data since 1977, the study estimates the elasticity of foreign superstar inventors' location to the net-of-tax rate at roughly 1.3, versus 0.04–0.06 for domestic inventors.
  2. The study estimates that a 10 percentage point cut in top tax rates would retain 1% more domestic and attract 38% more foreign superstar inventors, those holding the most valuable patents.
  3. Inventors employed by multinational companies are more likely to exploit tax differentials, while those in firms concentrating a higher share of research in a country are less sensitive to top tax rates.

"...paper studies the effect of top tax rates on inventors’ mobility since 1977. We put special emphasis on “superstar” inventors, those with the most and most valuable patents. We use panel data on inventors from the United States and European Patent Offices to track inventors’ locations over time and combine it with international effective top tax rate data. We construct a detailed set of proxies for inventors’ counterfactual incomes in each possible destination country including, among others, measures of patent quality and technological fit with each potential destination. We find that superstartop 1% inventors are significantly affected by top tax rates when deciding where to locate. The elasticity of the number of domestic inventors to the net-of-tax rate is relatively small, between 0.04 and 0.06, while the elasticity of the number of foreign inventors is much larger, around 1.3. The elasticities to top net-of-tax rates decline as one moves down the quality distribution of inventors. Inventors who work in multinational companies are more likely to take advantage of tax differentials. On the other hand, if the company of an inventor has a higher share of its research activity in a given country, the inventor is less sensitive to the tax rate in that country...We find that the superstar top 1% inventors are significantly affected by top tax rates when choosing where to locate. As one moves down the quality distribution of inventors, the sensitivity to top tax rates decreases. The elasticity of the number of top 1% domestic inventors to the net of tax rate is small, around 0.04. On the other hand, the elasticity of foreign top 1% superstar inventors is much larger around 1.3. Put differently, for a 10 percentage point decrease in top tax rates, the average country would be able to retain 1% more domestic superstar inventors and attract 38% more foreign superstar inventors. To put these numbers into perspective, the elasticity of the number of domestic football players in Kleven, Landais and Saez (2013) to the net of tax rate ranges from 0.07 to 0.16 depending on the estimate, and the elasticity of the number of foreign players ranges from 0.6 to 1.3...." Akcigit, Ufuk, Salomé Baslandze and Stefanie Stantcheva, "Taxation and the International Mobility of Inventors,"NBER, March 2015. Available at:http://www.nber.org/papers/w21024

Thursday, July 9, 2015

AI Summary. The authors argue that rapid labor-augmenting technical change has lowered effective capital-labor ratios in key US sectors, contributing to the decline in labor's share of income since 1980. With an elasticity of substitution between capital and labor below 1, they contend that boosting capital formation—potentially via a progressive consumption tax—could raise wages and labor's share.

Robert Lawrence National Bureau of Economic Research
Date Posted:
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Rapid labor-augmenting technical change has led to a decline in effective capital-labor ratios in key sectors, contributing to the fall in labor’s share of US income since 1980 @SteveLawrence Labor #Labor #USIncome

Would more capital formation raise labor's share of US income?

Core argument: The author argues that rapid labor-augmenting technical change has lowered effective capital-labor ratios in key US sectors despite rising measured capital-labor ratios, contributing to labor's declining share of income since 1980.

Despite rising capital-labor ratios, rapid labor-augmenting technical change has led to a decline in effective capital-labor ratios in key sectors, contributing to the fall in labor's share of US income since 1980. This paradox suggests that increased capital formation, potentially through a progressive consumption tax, could raise labor's share. Enhancements in equipment and software may increase labor's marginal product more than capital's, reducing the effective capital-labor ratio. With an elasticity of substitution between capital and labor less than 1, weak investment amid fast technical change is a key factor in labor's declining share. Boosting investment could increase wages, raise labor's share, and reduce inequality.

Takeaways by Macro Roundup® AI

  1. The author argues that rapid labor-augmenting technical change has lowered effective capital-labor ratios in key US sectors despite rising measured capital-labor ratios, contributing to labor's declining share of income since 1980.
  2. With an elasticity of substitution between capital and labor below 1, the account holds that weak investment alongside fast technical change is a key factor in labor's falling income share.
  3. The author suggests that boosting capital formation, potentially through a progressive consumption tax, could raise wages, lift labor's share, and reduce inequality.

Lawrence, Robert, "Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account,"NEBR, June 2015. Available at:http://www.iie.com/publications/interstitial.cfm

"....despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980.In combination with estimates that corroborate the consensus in the literature that is less than 1, these declines in the effective capital-labor ratio can account for much of the recent fall in labor’s share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor’s share in income....It is quite possible that improvements in equipment and software could increase the marginal product of labor by more than they increase the marginal product of capital and thus induce a decline in the effective capital-labor ratio used to produce a given quantity of output. It is also paradoxical to think that enhancing labor’s productivity could reduce labor’s share in income and reduce W/R ratios. This finding should not be surprisingonce it is recognized that technical change that doubles each worker’s productivity is equivalent to doubling the number of workers in the labor force.Just as in the face of inelastic demand an increase in the supply of a product could reduce its price by enough to reduce total revenue, so, too,an increase in the effective labor-capital ratio could reduce labor’s share in income, and even wages per worker, when labor and capital are not easily substituted.In the Hicks terminology, labor-augmenting technical change, which at the margin encourages the use of labor rather than capital, is termed “capital saving.” Thus another implication of labor-augmenting technical change is that less capital is required to produce a given amount of output. This implies that if output is constrained by inadequate demand, for example, investment would be weaker. The conventional wisdom is that there have been huge breakthroughs in IT that might have been expected to lead to unusually strong investment. Yet investment has been weak. This could be part of the explanation. The issue of whether capital and labor are gross complements or substitutes is crucial for determining the impact of measures that seek to aff ect the functional distribution of income.The leading proponent of these factors as substitutes, Thomas Piketty (2014), argues that to address a development that he regards as inequitable, governments should slow capital formation by imposing higher taxes on capital and wealth.This paper suggests that such measures could be counterproductive and actually reduce labor’s share in income by further lowering the eff ective capital-labor ratio. The evidence presented here corroborates the findings of many others in concluding that in the United States the elasticity of substitution between capital and labor is less than 1. Given this low elasticity, the cause of labor’s recent falling share is the weakness of investment in the face of faster labor-augmenting technical change rather than more capital deepening. This finding suggests that measures that boost investment and capital formation would lead to higher wages, raise labor’s share in income, and reduce income inequality...."