Citizens in Eastern Europe are less satisfied with life than their peers in other countries. This happiness gap has persisted, despite predictions to the contrary by earlier scholars. It holds after controlling for a variety of covariates, such as the standard of living, life expectancy and Eastern Orthodox religion. Armed with a battery of surveys from the early 1990s to 2014, we argue that the transition unhappiness gap is explained by how post-communist countries perceive their governments. Eastern Europeans are more likely to link their life satisfaction to perceived corruption and government performance, as compared to those in other countries. Our results suggest that that the transition from central planning is still incomplete, at least in the psychology of people.
This Policy Brief proposes an extended accounting approach that fully recognizes the importance of economic growth in this regard, by keeping track of the impact of growth on the primary fiscal surplus. Reducing high debt ratios will be challenging because the range of options for reducing debt is more limited than it once was and economic growth in the next decade is expected to be lower as a result of population aging and the lingering effects of the global financial crisis.
Public discourse has been heavily influenced by simple charts analyzing the correlations between measures of fiscal "austerity" and economic growth for small samples of countries over limited time periods. This policy brief analyzes the correlations in the data starting from the simplest and gradually building up, in a step-by-step, transparent manner, to multivariate regressions based on various samples of countries for different periods. The results show that simple correlations are no longer significant when considering longer sample periods putting lower weight on outliers (Greece). Broadening the sample beyond Europe, a tightening of fiscal policy is significantly associated with lower economic growth only in some specifications. On the whole, the data offer partial support to the notion that fiscal choices and output growth are correlated.
Summary: Exposure to a basic income table or graph makes subjects more likely to view government efforts to curb inequality as desirable, but most respondents continue to believe the U.S. is the most mobile country, even after exposure to information.
Slides: Canadian Economics Association (June 2013), Econometric Society Summer School on Bounded Rationality (August 2013), Tilburg Institute for Behavioral Economics Research (August 2013), European Economics Association (August 2013), International Society for New Institutional Economics at Duke University (June 2014).
Abstract: This paper studies whether limited information about inequality accounts for the (optimistic) beliefs and the (anti-tax) preferences of American voters. Unlike standard surveys, this experiment examines preferences for taxation while controlling for perceived economic opportunity, beliefs about how the economy works, and views about the sources of inequality. Random assignment to information exposure about income inequality is used to identify a causal relationship between awareness about income inequality and the perceived fairness of the economy. The first effect of information is an increase in pessimism about economic opportunity. After exposure to data, subjects are less likely to believe that people who work hard can get ahead in life through hard work alone (the odds of holding this view fall by one third). Many subjects say they are surprised by the data, and learning how much households in the top 0.1% earn raises support for general, unspecified government action against inequality by about 6 percentage points. However, the subjects who are exposed to information are not more willing to take specific action (pay higher taxes) compared to the uninformed control group.
Political Decay in Europe: An Examination of Preferences for
Predicting Economic Perceptions: A Disciplined Approach to a Multidimensional Problem
Boston Fed 59th Economic Conference. Adam S. Posen with Tomas Hellebrandt and Jan Zilinsky: Slides.
Preferences for diversification are strongly influenced by investment menus. When stocks of Apple are offered, the appeal of an index fund falls by 35%. Menu effects are strong for everyone, including the financially literate subjects.
Using sub-national data, this study shows that people are less likely to have ever owned stocks if they live in regions with strong family ties. In regions with high levels of trust, stock ownership rates are substantially higher (as previously shown with cross-country data).
Slides from the EEA conference in Malaga.
Comments on "After the Tournament: Outcomes and Effort Provision"
Comments on "Trickle-Down Consumption"