Sunday, October 28, 2012

Top marginal tax rates

Recently some rich people in France and US have asked the government to increase their own taxes. Some comparisons are awkward like the amount paid in taxes by Buffet or Romney which is around 15% (several percentage points below a middle class American).
The following is a nice graph that shows the evolution of the top marginal tax rates since 1916.

It can be found at:

Sunday, October 21, 2012

Ranking of economic blogs

There are many blogs about economics out there. Some are more academic, others are addressed to the general public and therefore more popular and some are generally ignored like this one.

There are also some websites that provide economic blog rankings. But none, as far as I’m concerned, has put together the two dimensions above together. In any case, the real reason of this post is that I wanted to create my own ranking based on these very dimensions: quality and popularity.

The method I used is pretty simple. First, I took the 75 best blogs in economics according to econacademics. This website ranks blogs by the number of academic papers linked in their posts. For example, the first one is: Economic logic, which has linked so far more than 900 academic papers. I took the econacademic ranking as a proxy for quality.

The second step was to check their Google PageRank value as a measure of the popularity dimension. In short, the higher the value at Google PageRank, the more likely to be in the front page of any search at Google.

The result of both dimensions is plotted in the following chart:

Apparently, there is a negative correlation between popularity and number of academic papers. So, if you are a blogger who wants more clicks remember not to talk about academic papers!

The next step was to rank them all by a single method. What I did is basically sum the two rank values for each blog.

And the winner is:

#blogrank qualityrank popularitysum of ranks
1Stumbling and Mumbling21315
2Economist's View15520
3Environmental and Urban Economics51520
4Economic Logic12324
5Organizations and Markets131427
6Marginal Revolution26228
7Environmental Economics22830
8Club Troppo92130
9NEP-DGE blog42630
10RePEc blog201131
11Grasping Reality with the Invisible Hand30333
12NEP-HIS blog112435
13NEP-LTV blog72835
14The Irish Economy191736
15Nada Es Gratis103040
16The Reality-Based Community35944
17Worthwhile Canadian Initiative291645
18The Big Picture43447
19Simoleon Sense143347
20Overcoming Bias41748

Monday, October 15, 2012

Banking concentration and financial crisis

This paper is an old one (2005 is old?). It deals with the old debate of banking concentration, banking efficiency and systemic risk. In fact, in the second line of the introduction, authors states:
Indeed, economic theory provides conflicting predictions about the relationship between the concentration and the competitiveness
So, apparently there was nothing but conflict about this issue. But this paper was/is a milestone not only because Levine is one of the authors but also because is the first paper to use a goodly amount of data: 69 countries and 20 years
Using data on 69 countries over the period 1980–1997, this paper provides the first cross-country assessment of the impact of national bank concentration, bank regulations, and national institutions on the likelihood of a country suffering a systemic banking crisis
It is true, Reinhart and Rogoff 2008 book was even more of a milestone but I will talk about it in another post. What I like about this paper is that it was written before the Great Recession and they came up with the following conclusion that contradicts today’s main pro-regulatory arguments:
crises are less likely in economies with more concentrated banking systems even after controlling for differences in commercial bank regulatory policies, national institutions affecting competition, macroeconomic conditions, and shocks to the economy. Furthermore, the data indicate that regulatory policies and institutions that thwart competition are associated with greater banking system fragility […] our analyses suggest that the relationship between concentration and crises is not driven by reverse causality.
Results are pretty clear whatever the control variables are:
Including economic indicators:
Including regulatory variables:
Including cultural variables:

Sunday, October 7, 2012

The curious case of GDP and the public sector

As you probably know already GDP is measured as net output or in other words excluding inputs. A simple example, let’s say a country A only produce pencils, then it’s GDP would be:

GDP= (number of pencils produced x price of pencil) – (price of imported wood and lead)

This method is applied to all product and service produced inside a country except for public services and products. Because public output can’t be measured by market means (there are no prices for public health or public primary education) economists came to the conclusion that the best way to quantified them is measuring them by their inputs.

The problem is that when using this method, inefficiency is not taken into account and GDP becomes erroneous. An example: let’s say that the public sector of country A is much more efficient that in country B, but both spend the same amount of $ (same input) on it. In such a case the GDP published by both countries would be the same although country B would be producing less public output than country A.

So, the essence of GDP which is the value added of an economy is then dodgy. FrancescoGrigoli and Eduardo Ley tried to correct this problem by measuring public inefficiency and then adjusting national GDP. 
“Our results suggest that the magnitude of the correction could be significant. When
correcting for inefficiencies in the health and education sectors, the average loss for a set of 24 EU member states and emerging economies amounts to 4.1 percentage points of GDP.”
The following chart shows the relation between GDP loss and GDP per capita

 According to their explanations, there is no relation because poorer countries have smaller public sectors than richer ones and therefore their higher inefficiency is compensated.

Monday, October 1, 2012

Demand for sovereignty

A new threat seems to haunt the European Union, nationalism. It is spreading all through the continent, from UK to Finland and from Netherlands to Greece. These movements claim to be against the political unification of Europe but nationalisms has also spread to the existing countries itself. Some regions have raised for independence as never before. Catalonia pro-independence movement has grown hugely in the last years, as it is the case in Scotland.

It is pretty obvious that anti-EU nationalism and the regional pro-independence movements have the same root, the European economic crisis. Sovereignty conflicts have been always very linked to the situation of the economy.

Since late XX century academic research has analysed regionalism and nationalism movements from the economic perspective. The last paper I know of comes from Nicholas Sambanis and Branko Milanovic.  Branko Milanovic is well-known economist from the World Bank and an expert on inequality issues. In “Explaining the Demand for Sovereignty” both authors analyse the roots of sovereignty demand and reach an interesting conclusion: wealth is the most important factor behind sovereignty demands and not ethnicity.

In their own words:  
“richer regions are more likely to want more autonomy and conflict arises due to a disparity between desired and actual levels of sovereignty."

According to a previous paper from Buchanan and Faith (1987) the success of a regional independence movement depends in part on that region’s wealth.

There are, however, other factors: 
 “positive association between, on the one hand, relative regional income, regional population share, natural resource endowment, and regional inter-personal inequality and, on the other hand, observed sovereignty levels. Ethnically distinct regions have lower sovereignty, but this association is only conditional on controlling for the interactive effects between ethnic distinctiveness and regional inter-personal inequality."
 The regression results and variables used: