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Creator: Karabarbounis, Loukas and Neiman, Brent Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 749 Abstract:
Comparing U.S. GDP to the sum of measured payments to labor and imputed rental payments to capital results in a large and volatile residual or “factorless income.” We analyze three common strategies of allocating and interpreting factorless income, speciﬁcally that it arises from economic proﬁts (Case Π), unmeasured capital (Case K), or deviations of the rental rate of capital from standard measures based on bond returns (Case R). We are skeptical of Case Π as it reveals a tight negative relationship between real interest rates and markups, leads to large ﬂuctuations in inferred factor-augmenting technologies, and results in markups that have risen since the early 1980s but that remain lower today than in the 1960s and 1970s. Case K shows how unmeasured capital plausibly accounts for all factorless income in recent decades, but its value in the 1960s would have to be more than half of the capital stock, which we ﬁnd less plausible. We view Case R as most promising as it leads to more stable factor shares and technology growth than the other cases, though we acknowledge that it requires an explanation for the pattern of deviations from common measures of the rental rate. Using a model with multiple sectors and types of capital, we show that our assessment of the drivers of changes in output, factor shares, and functional inequality depends critically on the interpretation of factorless income.
Palabra clave: Return to capital, Missing capital, Profits, and Factor shares Tema: E01 - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts, E25 - Aggregate Factor Income Distribution, E22 - Investment; Capital; Intangible Capital; Capacity, and E23 - Macroeconomics: Production
Creator: Kollintzas, Tryphon, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 352 Abstract:
This paper derives a variance bounds test for a broad class of linear rational expectations models. According to this test if observed data accords with the model, then a weighted sum of autocovariances of the covariance-stationary components of the endogenous state variables should be nonnegative. The new test reinterprets its forefather—West's  variance bounds test— and extends its applicability by not requiring exogenous state variables in order to be tested. The possibility of the test's application to nonlinear models is also discussed.
Palabra clave: Overlapping generations models, Inventory, and Macroeconomics Tema: C52 - Model Evaluation, Validation, and Selection and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: McGrattan, Ellen R. and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 494 Abstract:
During the downturn of 2008–2009, output and hours fell significantly while labor productivity rose. These facts have led many to conclude that there is a significant deviation between observations and current macrotheories that assume business cycles are driven, at least in part, by fluctuations in total factor productivities of firms. We show that once investment in intangible capital is included in the analysis, there is no inconsistency. Measured labor productivity rises if the fall in output is underestimated; this occurs when there are large unmeasured intangible investments. Microevidence suggests that these investments are large and cyclically important.
Palabra clave: Business cycles, Productivity, and Intangible capital Tema: E32 - Business Fluctuations; Cycles and E13 - General Aggregative Models: Neoclassical
Creator: Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 018 Palabra clave: Foreign exchange rates, Capital movements, and Foreign earning asset Tema: F31 - Foreign Exchange, E10 - General Aggregative Models: General, E62 - Fiscal Policy, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Bhandari, Anmol, Birinci, Serdar, McGrattan, Ellen R., and See, Kurt Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 568 Abstract:
This paper examines the reliability of widely used surveys on U.S. businesses. We compare survey responses of business owners with administrative data and document large inconsistencies in business incomes, receipts, and the number of owners. We document problems due to nonrepresentative samples and measurement errors. Nonrepresentativeness is reflected in undersampling of owners with low incomes. Measurement errors arise because respondents do not refer to relevant documents and possibly because of framing issues. We discuss implications for statistics of interest, such as business valuations and returns. We conclude that predictions based on current survey data should be treated with caution.
Palabra clave: Business taxes and valuation, Intangibles, and Survey data Tema: H25 - Business Taxes and Subsidies including sales and value-added (VAT), C83 - Survey Methods; Sampling Methods, and E22 - Investment; Capital; Intangible Capital; Capacity
Creator: Chen, Daphne, Guvenen, Fatih, Kambourov, Gueorgui, Kuruscu, Burhanettin, and Ocampo, Sergio Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 764 Abstract:
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average lifetime utility to a newborn (about 7.5% in consumption-equivalent terms). Turning to optimal taxation, the optimal wealth tax (OWT) in a stationary equilibrium is positive and yields even larger welfare gains. In contrast, the optimal capital income tax (OCIT) is negative—a subsidy—and large, and it delivers lower welfare gains than the wealth tax. Furthermore, the subsidy policy increases consumption inequality, whereas the wealth tax reduces it slightly. We also consider an extension that models the transition path and find that individuals who are alive at the time of the policy change, on average, would incur large welfare losses if the new policy is OCIT but would experience large welfare gains if the new policy is an OWT. We conclude that wealth taxation has the potential to raise productivity while simultaneously reducing consumption inequality.
Palabra clave: Capital income tax, Wealth taxation, Wealth inequality, Power law models, and Rate of return heterogeneity Tema: E21 - Macroeconomics: Consumption; Saving; Wealth, H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, E22 - Investment; Capital; Intangible Capital; Capacity, and E62 - Fiscal Policy
Creator: McGrattan, Ellen R. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 454 Abstract:
Empirical studies quantifying the economic effects of increased foreign direct investment (FDI) have not provided conclusive evidence that they are positive, as theory predicts. This paper shows that the lack of empirical evidence is consistent with theory if countries are in transition to FDI openness. Anticipated welfare gains lead to temporary declines in domestic investment and employment. Also, growth measures miss some intangible FDI, which is expensed from company profits. The reconciliation of theory and evidence is accomplished with a multicountry dynamic general equilibrium model parameterized with data from a sample of 104 countries during 1980–2005. Although no systematic benefits of FDI openness are found, the model demonstrates that the eventual gains in growth and welfare can be huge, especially for small countries.
Palabra clave: Development, Technology capital, and Foreign direct investment Tema: O32 - Management of Technological Innovation and R&D, F21 - International Investment; Long-term Capital Movements, and F23 - Multinational Firms; International Business
Creator: McGrattan, Ellen R. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 671 Abstract:
Empirical studies quantifying the benefits of increased foreign direct investment (FDI) have been unable to provide conclusive evidence of a positive impact on the host country’s economic performance. I show that the lack of robust evidence is not inconsistent with theory, even if the gains to FDI openness are large. Anticipated welfare gains to increased inward FDI should lead to immediate declines in domestic investment and employment and eventual increases. Furthermore, since part of FDI is intangible investment that is expensed from company profits, gross domestic product (GDP) and gross national product (GNP) should decline during periods of abnormally high FDI investment. Using the model of McGrattan and Prescott (2009) and data from the IMF Balance of Payments to parameterize the time paths of FDI openness for each country in the sample, I do not find an economically significant relationship between the amount of inward FDI a country did over the period 1980—2005 and the growth in real GDP predicted by the model. This finding rests crucially on the fact that most of these countries are still in transition to FDI openness.
Palabra clave: Foreign direct investment, Technology capital, and Development Tema: F23 - Multinational Firms; International Business, F21 - International Investment; Long-term Capital Movements, and O23 - Fiscal and Monetary Policy in Development
Creator: Asturias, Jose, Hur, Sewon, Kehoe, Timothy Jerome, 1953-, and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 544 Abstract:
Applying the Foster, Haltiwanger, and Krizan (FHK) (2001) decomposition to plant-level manufacturing data from Chile and Korea, we find that the entry and exit of plants account for a larger fraction of aggregate productivity growth during periods of fast GDP growth. Studies of other countries confirm this empirical relationship. To analyze this relationship, we develop a simple model of firm entry and exit based on Hopenhayn (1992) in which there are analytical expressions for the FHK decomposition. When we introduce reforms that reduce entry costs or reduce barriers to technology adoption into a calibrated model, we find that the entry and exit terms in the FHK decomposition become more important as GDP grows rapidly, just as they do in the data from Chile and Korea.
Palabra clave: Exit, Productivity, Entry, Barriers to technology adoption, and Entry costs Tema: O38 - Technological Change: Government Policy, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, E22 - Investment; Capital; Intangible Capital; Capacity, and O10 - Economic Development: General