↳ Institutions

August 3rd, 2020

↳ Institutions

Nocturnal Pasture

OFFSHORING

Much research has documented the vast sums of "missing wealth" stored in tax havens, and detailed its implications for inequality, fiscal policy, and economic growth. Less present in the discussion is the institutional and political history of these offshore financial centers.

In a 2017 paper, VANESSA OGLE recounts the making of what she terms the offshore "archipelago"—the various institutions that, outside of the core of powerful nation-states, became central to the international financial system. From the paper:

"Contemporary definitions of tax havens are often too static to capture the more fluid and multifaceted legal constellation among such sites as they appear to the historian. In the age of empire, the natural state of affairs entailed legal unevenness. This world was made up of centralized nation-states, multiethnic land empires, overseas empires with their colonies, protectorates, settlements, and dominions, as well as 'informal empire' with its regimes of extraterritoriality and legal pluralism. Local administrations in overseas territories had considerable leeway in drafting company and bank laws or tax codes and accounting standards for these respective entities and sub-entities. Legal and political unevenness greatly benefited tax avoidance on a global scale.

As empires came undone, an archipelago-like landscape of distinct legal spaces re-created some of the unevenness that had characterized the nineteenth century. Yet in the twentieth century, this offshore world and the unevenness it offered existed in and for a world order in which bounded, homogeneous national state spaces and generally sizable nation states had eventually become the norm. The New Deal, the European welfare state, decolonization, and the Bretton Woods system were state-based and government-driven projects. The offshore world emerged on a more significant scale precisely at the moment when these state-based projects began to assume their greatest importance. It consisted of tax havens, flags of convenience registries, offshore financial markets and banking institutions, and special economic zones. This landscape allowed free-market capitalism to flourish on the sidelines of a world increasingly dominated by larger and more interventionist nation-states."

Link to the piece.

  • Antonio Coppola, Matteo Maggiori, Brent Neiman, and Jesse Schreger recalculate global capital flows, accounting for cross-border financing and tax havens: "We find that portfolio investment from developed countries to firms in large emerging markets is dramatically larger than previously thought. The national accounts of the United States, for example, understate the U.S. position in Chinese firms by nearly $600 bn, while China’s official net creditor position to the rest of the world is overstated by about 50 percent." Link.
  • Drawing on interviews with key informants from banks, shell companies, foreign real estate, and investor citizenship programs, Alexander Cooley and J. C. Sharman argue that "professionals in major financial centers serve to lower the transaction costs of transnational corruption by senior foreign officials." Link.
  • Daniela Gabor and Cornel Ban's 2017 paper on the political economy of shadow banking. Link. And Jan Fichtner's 2016 "anatomy" of the Cayman Islands offshore financial center. Link.
  • The 2011 book The New Fiscal Sociology, edited by Isaac Martin, Ajay Mehrotra, and Monica Prasad, marks and collects interdisciplinary research in the comparative history and politics of taxation. Link.
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July 27th, 2020

Avey From Cane

PUBLIC HEALTH FEDERALISM

Catastrophic deficiencies in the federal response to the Covid-19 pandemic have led to renewed discussion over federalism and its discontents. The divergence among state responses to the crisis in the absence of federal guidance has produced analyses of Trump’s unique, “narrow” sense of federalism, pronouncements of “a new era of federalism,” and hopes for a solidarity-minded “civic federalism.”

In a 1997 article, health law professor JAMES G. HODGE JR. analyzes the impact of state-centric “new federalism” jurisprudence on the government’s ability to realize public health goals. Hodge places new federalism in the context of decades of increasing intrusion by the federal government on states’ power over public health policy:

"The impact of new federalism on the field of public health law is seen in the history of public health regulation. The metamorphosis of public health regulation from purely local to predominantly national means resulted from increased federal presence in the field corresponding to a deemphasis on traditional federalism. It is an inescapable conclusion that an increased federal presence shifted public health goals. National public health priorities dominate local ones. New federalism restrains the federal intrusion on state public health powers by requiring Congress to operate within the constraints of the political process. As a result, state police powers exercised in the interest of public health are strengthened emphatically by the political process confining federal authority to enter the field."

Full paper available here.

  • In an article published this April, Hodge reassesses federal vs. state public health powers in light of disparate responses to the pandemic: "Americans are left wondering, 'which level of government is actually in charge here?' In the face of a pandemic like Covid-19, the answer under principles of federalism is increasingly clear: neither." Link.
  • "American federalism—with its fissures and fractures—haunts the state of emergency." A March post from Phillip Rocco. Link. (See also Rocco's recent post on fiscal federalism in Notes on the Crises.) Along similar lines: Rocco, Daniel Béland, and Alex Waddan on the fiscal barriers to pandemic response. Link. And Nicole Huberfeld, Sarah H. Gordon, and David K. Jones argues that the pandemic has magnified the state-level inequities fostered by federalism. Link.
  • For another view on the relationship between federalism and public health: A 2014 paper by Adam Varvel on the West Nile outbreak of 1999. Link. See also: A post-SARS policy brief on the impact of federalism on international health regulations. Link.
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April 21st, 2020

Group Formation

ADVANCE FORMATION

Comparative development and social policy

Among the diverse local and national policy responses undertaken to combat the pandemic in recent months, Kerala's has been notable. Within the broader context of Indian economic development, Kerala's government has a tradition of successful redistributive development policies, sometimes referred to as the Kerala model.

In a 2005 article, MANALI DESAI traces Kerala's unique post-independence record of welfare provision to its experience under indirect British rule. By comparing the trajectory of its policy successes to those of West Bengal, a state with a similar electoral history, Desai strikes a distinctive balance between path dependency and contingency, arguing that "the form and content of welfare policies are shaped by the exigencies of state formation, but political struggles are the decisive determining factors of the former."

From the article:

"In the somewhat meager annals of comparable state action in third world societies, Kerala appears as a clear exception. Despite fierce party competition, a church-landlord coalition, and the imposition of presidents’ rule on two different occasions (in 1959 and 1965), the state has seen an array of policies aimed at redistributing land, and providing education, pension plans, minimum wage legislation, and housing for the poor. There have been few serious attempts at understanding these state actions as a form of historical agency. In particular, an issue that is consistently overlooked is the fact that Kerala’s post-independence policy regime was preceded by significant welfare expansion in the nineteenth century in its two southern princely states of Travancore and Cochin. In part under pressure from the British administration, both monarchies undertook significant land reforms and expanded education and health care. While reforms by princely states were not that unusual in the colonial era, the scale and scope of Kerala’s surpassed its peers.

The extreme nature of the caste hierarchy in Kerala, perhaps the most oppressive across India, meant that Christian missionaries not only found a home in Kerala but fed and even stimulated caste insurgency. In particular, one crucial effect of British rule and Protestant missionary activity was the increased porosity of the state to social (lower caste) demands. Both dimensions of colonial power (colonial power as well as social resistance to this power) destroyed status privileges, primarily those based on caste, to a larger degree than found elsewhere in British India. Early welfare policies in Kerala were implemented in a dependent colonial context and aimed at warding off annexation by the British, but their unintended consequences were to stimulate what they were precisely designed to avoid—radical caste and class movements."

Link to the piece.

  • An edited volume from 2000 looks at the history of Kerala's social policies. Link. (A 1991 exchange in the NYRB between Barbara H. Chasin and Richard W. Franke, and Amartya Sen discusses the nature of Kerala's "exceptionalism." Link.)
  • "This article addresses the welfare state in a global historical context. In the new societies of industrial capitalism, two powerful and opposite interests converged in generating public social policies. It uses the five-part model to ask what lessons, if any, it has for the likely emergence of welfare states in the developing world. It also recognizes the immense variety within the 'global South' and distinguishes the distinctive patterns of risk management within it." A 2010 paper by Ian Gough and Göran Therborn. Link. (Ungated version here.)
  • A 2007 paper by Nita Rudra looks at the applicability of Gøsta Esping-Andersen's welfare state typology in the developing context. Link. And Stephen Haggard and Robert Kaufman's 2009 book provides a comparative account of welfare state development across Latin America, East Asia, and Eastern Europe. Link.
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October 28th, 2019

Radius

RELATIVE DUTIES

The origins of American tax policy

Tax reform is at the forefront of contemporary policy debate. US citizens pay taxes at lower rates than their European counterparts, and a growing number of researchers agree that progressive taxes on wealth and income have the potential to rectify inequality. The historically less progressive nature of American tax policy is commonly explained as a product of the colonies' early opposition to "taxation without representation," as well as the large population of immigrants, the absence of traditional aristocracy, and the ubiquity of "country party republican" ideology which characterized the country's formation.

In an essay accompanying the publication of her 2006 book, historian ROBIN EINHORN introduces a new factor into the debate: the impact of domestic politics around slavery on early American state-building. From the piece:

"Americans are right to think that our anti-tax and anti-government attitudes have deep historical roots. Our mistake is to dig for them in Boston. We should be digging in Virginia and South Carolina rather than in Massachusetts or Pennsylvania, because the origins of these attitudes have more to do with the history of American slavery than the history of American freedom. In 1776, Congress was talking about slavery because its members were framing a national government for the new nation—what would become the Articles of Confederation. Trying to figure out how to count the population to distribute tax burdens to the various states, the members inevitably faced the problem of whether to count the population of enslaved African Americans. Since slaves were 4% of the population in the North and 37% of the population in the South, this decision would have a huge impact on the tax burdens of the white taxpayers of the northern and southern states.

Slaveholders developed three solutions to this general problem. First, they tried to guarantee that they dominated the legislative process by manipulating the representation rules. Second, they demanded weak governments that would make few of the decisions that provoked discussions of slavery. Third, they insisted on constraining the tax power through constitutional limitations on its use. Yet the real slaveholder victory lay in a fourth strategy—persuading the nonslaveholding majorities that the weak government and constitutionally restrained tax power actually were in the interests of the nonslaveholders themselves. Slaveholders persuaded many of their contemporaries that expansions of slavery are expansions of 'liberty,' constitutional limitations on democratic self-government are defenses of 'equal rights,' and the power of slaveholding elites is the power of the 'common man.' In the topsy-turvy political world we have inherited from the age of slavery, the power of the majority to decide how to tax became the power of an alien 'government' to oppress 'the people.'"

Link to the essay, and link to a 2000 academic article by Einhorn which presents the argument in greater historical detail.

  • "The growth in cash transactions was critical to the evolution of the modern income tax. Because the market's cash nexus permitted more and more individuals to derive a greater portion of their income and wealth from the sale of their labor services, lawmakers were able to more easily measure and tap the growing tax base. Consequently, the national tax structure began to shift away from a reliance on indirect levies, namely import duties and excise taxes on alcohol and tobacco, toward more direct and graduated taxes on income and wealth transfers." Ajay Mehrotra looks at the economic developments behind the passage of the 16th Amendment in 1913. Link.
  • In a new paper, Lucy Barnes links tax progressivity to the strength of capital-labor coalitions in European countries prior to World War I. Link.
  • A 2017 paper by Raymond Fisman, Keith Gladstone, Ilyana Kuziemko, and Suresh Naidu offers the first ever evidence on the taxation preferences of US citizens, finding that Americans are more likely to support taxes on wealth than on savings. Link. See also this 2016 paper by Naidu, Felipe González, and Guillermo Marshall on the role of slave property rights in promoting early American economic development. Link.
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February 23rd, 2019

Grievous Plans

NO SHORTAGE

New evidence on the relationship between skills and labor supply

More than a decade after the financial crisis of 2008, median household incomes have stagnated at their pre-2008 levels, and global economic growth is expected to decline further from what is already a historic low. While the unemployment rate has rebounded, part time, service, and temporary work remain the principal drivers behind labor market growth. Weak recovery from the crisis has been widely attributed to the “skills gap”; commentators and policymakers alike hold that quality jobs are there, but Americans are simply not qualified to perform them.

At the American Economic Association’s most recent conference, ALICIA SASSER MODESTINO, DANIEL SHOAG, and JOSHUA BALLANCE provide evidence against this view. Using a proprietary database of more than 36 million online job postings, they show that employers increased skill requirements in states and occupations which experienced larger increases in the unemployment rate. Their findings suggest that it wasn’t a shortage of skills which weakened labor markets, but rather the ubiquity of qualified applicants which drove employers to raise hiring standards. By testing employer responses to an influx of veterans from Iraq and Afghanistan, the authors are able to confirm this mechanism:

"As a source of exogenous variation in the availability of skilled workers, we make use of a natural experiment resulting from the large increase in the post-9/11 veteran labor force following troop withdrawals from Iraq and Afghanistan... Panel A of Table 5 demonstrates that there is a strong, significant, and positive relationship between the sharp increase in the supply of returning veterans and the rise in employer skill requirements for both education and experience."

This is among the first pieces of empirical evidence which suggests that employer skill requirements are driven, in part, by labor supply. Link to the conference webpage, where a full version of the paper is available for download.

  • As early as 2011, Lawrence Mishel argued against analysts who asserted that the unemployment crisis was structural, proposing instead that the economy was experiencing a crisis of demand. Link.
  • In his most recent book, LSE anthropologist David Graeber examines the relationship between skill and value, questioning why jobs which produce the most social value tend to be categorized as unskilled, consequently earning lower wages. Link to Graeber's widely acclaimed essay from 2013 that first outlined his argument, and link to the Google preview of his new book.
  • In a report for the Roosevelt Institute, Marshall Steinbaum and Julie Margetta Morgan argue that the 'skills gap' narrative is inconsistent with student debt crisis: "Although the country’s populace is becoming more educated, each educational group is becoming less well paid." Link.
  • Paul Osterman wrote an accessible overview of the debate for The Atlantic in 2014: “The claim that a shortage of skilled workers has exacerbated inequality has gained traction but it is not supported by the data… For instance, while 38 percent of manufacturing firms require math beyond simple addition, subtraction, and multiplication, the type of math employees need to be able to handle are standard features of a good high school education and part of the curriculum for most community-college students…Nearly 65 percent of businesses report they have no vacancies whatsoever, and another 76.3 percent report they have no long-term vacancies…” Link.
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