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This edition was written by Elijah Asdourian, Alex Conner, Georgia Nabors, and David Wessel.
Nikhil Patel and Adrian Peralta-Alva of the International Monetary Fund decompose changes in general government debt-to-GDP ratios across advanced economies from 1981 to 2019 into three independent factors: Demand shocks to GDP, supply shocks to GDP, and shocks to the primary deficit – any changes in the primary deficit that are unrelated to business cycle conditions. Together, the GDP factors explain around 40% of the variation of debt-to-GDP in the median advanced economy, compared to roughly 15% for shocks to the primary deficit. The authors also find that primary deficit reductions, controlling for GDP shocks, have no significant effect on GDP. This result departs from previous research which has found strong negative effects of fiscal consolidation on GDP. The authors argue that their results arise because their model more carefully separates changes in the primary deficit that are unrelated to the business cycle and GDP shocks.
The percentage of people who report self-employment income on their taxes has risen in recent years, consistent with the narrative that the U.S. is transitioning to a “gig” economy driven by companies like Uber and Lyft. However, there has not been a commensurate change in self-employment in other surveys that measure self-employment, such as the Current Population Survey. Using tax data from 2000 to 2018, Andrew Garin of Carnegie Mellon, Emilie Jackson of Michigan State, and Dmitri Koustas of the University of Chicago attribute the discrepancy to the increasing propensity of taxpayers to report their self-employment income on their tax returns. Below certain income thresholds, the Earned Income Tax Credit and Child Tax Credit are large enough to give taxpayers negative marginal income tax rates. The authors find sharp increases in reporting of self-employment income for these taxpayers, while finding no increases for taxpayers above the thresholds and no effects on firm-reported payments at all. These findings are consistent with “pure strategic reporting behavior,” they write, suggesting that an increasing gig economy has not driven the rise in reported self-employment.
Using data from 2000 to 2022, Alessandro Caiumi and Giovanni Peri of the University of California, Davis find that immigrant workers generally don’t substitute for native workers. Indeed, they find that 1% increase in the employment of immigrants leads to an increase in the employment-population ratio for native workers with similar education levels of between 0.048% and 0.095%. They also estimate that the influx of immigrants from 2000 to 2019 raised the wages of native-born workers with a high school degree or less by 1.7% to 2.6% on average. Natives overall saw a 0.5% to 0.8% increase in their wages on average as a result of immigration, the authors say.
“I believe that this race to the bottom in corporate tax rates took place over decades, around the world, one jurisdiction competing with others, to attract investment. And the only beneficiaries from that were really the companies themselves. Workers in all the countries where this was taking place, ended up bearing more of the tax burden,” says Janet Yellen, Secretary of the Treasury.
“And countries found it increasingly difficult to tax corporations to raise the funding that we need to support middle class families and to invest in our country. And so, stopping the race to the bottom means multinationals, based in every country around the world, will all face the same minimum tax. Some countries will charge more than the minimum tax we've proposed. And I believe that the United States can, given the environment for business in our country, we can afford to do that. And we've proposed a minimum rate of 21%. Also, that would be in line with our proposal for the corporate alternative minimum tax.”
On May 8 at 1:30 p.m. EDT, Federal Reserve Governor Lisa D. Cook, who chairs the Federal Reserve Board’s Committee on Financial Stability, will discuss the Fed’s latest semi-annual Financial Stability Report at an event hosted by the Hutchins Center on Fiscal and Monetary Policy.
