Economic Policy for the 21st Century
Nearly all Levy Institute research focuses not only on economic analysis, but also on the creation of possible strategies through which policymakers may solve the issue at hand. This program includes research on those macroeconomic policy areas most closely associated with public sector activities: monetary policy and financial institutions, federal budget policy, and the labor market. Examples of studies on monetary policy and financial institutions include explorations of the repercussions the euro’s introduction has had on monetary and fiscal policies and monetary institutions within the European Community; the effectiveness of monetary policy; and Minskyan analyses of the current economic problems in the United States, Japan, and Brazil. Examinations of federal budget policies cover such topics as the effects of budget surpluses on the economy, the need for fiscal expansion to combat economic torpor, and analyses of the Social Security and health care systems.
Working Paper No. 931 | May 2019This paper follows the methodology developed by J. M. Keynes in his How to Pay for the War pamphlet to estimate the “costs” of the Green New Deal (GND) in terms of resource requirements. Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures do appear, deferring a small amount of consumption will be sufficient to attenuate them.Download:Associated Program(s):Author(s):Yeva Nersisyan L. Randall WrayRelated Topic(s):Region(s):United States
Working Paper No. 926 | April 2019
Lessons for Monetary UnionsThe debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and the experience of a monetary union equipped with fiscal shock absorbers, such as the United States, has often been a reference. This paper enhances our knowledge about the degree of macroeconomic stabilization achieved in the United States through the federal budget, providing a detailed breakdown of the different channels. In particular, we investigate the relative importance and stabilization impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. The analysis shows that in the United States, corporate income taxes collected at the federal level are the single most efficient instrument for providing stabilization, given that even with a smaller size than other instruments they can provide important effects, mainly against common shocks. On the other hand, Social Security benefits and personal income taxes have a greater role in stabilizing asymmetric shocks. A federal system of unemployment insurance, then, can play an important stabilization role, in particular when enhanced by a discretionary program of extended benefits in the event of a large shock, like the Great Recession.Download:Associated Program(s):Author(s):Plamen Nikolov Paolo PasimeniRelated Topic(s):
In the Media | March 2019
By Katia DmitrievaBloomberg Quick Take with the Washington Post, March 13, 2019. All rights reserved.
Outlining the basics of Modern Monetary Theory, Bloomberg's Katia Dmitrieva cites the work of Levy Research Associate Pavlina Tcherneva as a leading voice in the field.
Read more: https://www.washingtonpost.com/business/for-overspending-governments-an-alternative-view-on-borrowing-versus-raising-taxes/2019/03/12/13945b5a-44dc-11e9-94ab-d2dda3c0df52_story.html?noredirect=on&utm_term=.ee3a91c52dc5Associated Program:
Working Paper No. 909 | July 2018
Applying Minsky’s Theory of Financial Fragility to International MarketsThis inquiry argues that the successful completion of the transition process in the post-Soviet economies is constrained by the prevailing social structure and low levels of technological progress, both of which require institutional reforms aimed at increasing growth in national income, productivity, and the degree of export competitiveness. Domestic policy implementation has not shown significant improvements on these fronts, given its short-term orientation, but instead resulted in stagnating growth rates, continuously accumulating levels of external debt, and decreasing living standards. The key to a successful completion of the transition process is therefore a combination of policies targeted at the dynamic transformation of production structures within an environment of financial stability and favorable macroeconomic conditions.Download:Associated Program(s):Author(s):Liudmila MalyshavaRelated Topic(s):Region(s):Russia and Eastern Europe
In the Media | June 2018
By Katrina vanden HeuvelWashington Post, June 19, 2018. All Rights Reserved.
Katrina vanden Heuvel discusses student debt forgiveness and the recent Levy Research Project Report, "The Macroeconomic Effects of Student Debt Cancellation."
Read more: https://www.washingtonpost.com/opinions/americans-are-drowning-in-student-loan-debt-the-us-should-forgive-all-of-it/2018/06/19/82565218-7314-11e8-9780-b1dd6a09b549_story.html?utm_term=.1a2216214882Associated Program:
Working Paper No. 902 | April 2018
Design, Jobs, and ImplementationThe job guarantee (JG) is a public option for jobs. It is a permanent, federally funded, and locally administered program that supplies voluntary employment opportunities on demand for all who are ready and willing to work at a living wage. While it is first and foremost a jobs program, it has the potential to be transformative by advancing the public purpose and improving working conditions, people’s everyday lives, and the economy as a whole.
This working paper provides a blueprint for operationalizing the proposal. It addresses frequently asked questions and common concerns. It begins by outlining some of the core propositions in the existing literature that have motivated the JG proposal. These propositions suggest specific design and implementation features. (Some questions are answered in greater detail in appendix III). The paper presents the core objectives and expected benefits of the program, and suggests an institutional structure, funding mechanism, and project design and administration.Download:Associated Program(s):Author(s):Related Topic(s):
Press Releases | February 2018
Research Project Reports | February 2018Among the more ambitious policies that have been proposed to address the problem of escalating student loan debt are various forms of debt cancellation. In this report, Scott Fullwiler, Research Associate Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the likely macroeconomic impacts of a one-time, federally funded cancellation of all outstanding student debt.
The report analyzes households’ mounting reliance on debt to finance higher education, including the distributive implications of student debt and debt cancellation; describes the financial mechanics required to carry out the cancellation of debt held by the Department of Education (which makes up the vast majority of student loans outstanding) as well as privately owned student debt; and uses two macroeconometric models to provide a plausible range for the likely impacts of student debt cancellation on key economic variables over a 10-year horizon.
The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.
Download:Associated Program(s):Author(s):Scott Fullwiler Stephanie A. Kelton Catherine Ruetschlin Marshall SteinbaumRelated Topic(s):Region(s):United States
Working Paper No. 898 | October 2017The paper attempts to measure the incidence of corporate income tax in India under a general equilibrium setting. Using seemingly uncorrelated regression coefficients and dynamic panel estimates, we tried to analyze both the relative burden of corporate tax borne by capital and labor and the efficiency effects of corporate income tax. The data for the study is compiled from corporate firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000–15. Our empirical estimates suggest that in India capital bears more of the burden of corporate taxes than labor. Though it is contrary to the Harberger (1962) hypothesis that the burden of corporate tax is shifted to labor rather than capital, it confirms the existing empirical results in the context of India.Download:Associated Program:Author(s):Lekha S. Chakraborty Samiksha AgarwalRelated Topic(s):Region(s):Asia
Working Paper No. 895 | August 2017This paper examines two key aspects of unemployment—its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention—preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.
Download:Associated Program(s):Author(s):Related Topic(s):Employer of Last Resort (ELR) policy Employment guarantee Job guarantee Labor markets Macroeconomic policy UnemploymentRegion(s):United States