The purpose of this blog

This blog contains an archive of my blog posts from 2004-2010, written while working as an academic economist at the Australian National University. They have been moved here because I wanted to use the URL andrewleigh.com as a political site (at this stage, my plan is to keep all my economics research at andrewleigh.org).

The transition has also preserved all comments. However, because the blog is an archive, I have now closed it to further comments.

At some point in the future, I’m hoping to resume blogging at andrewleigh.com.

Posted in Uncategorized

Turning Points

I’m fortunate to have been preselected as the ALP candidate for the federal seat of Fraser (AAP report here). I haven’t been discussing the preselection much on this blog, but it’s been the main thing occupying my attention over the past three months, as I’ve spent my nights and weekends speaking with the 240 Labor Party members who eventually voted yesterday. Thanks to a great campaign team, I’m slowly making the evolution from the academic style of hard facts and sharp differences to the political style of storytelling and common ground, but it’s been one heck of a learning experience.

The other candidates – Christina Ryan, Jim Jones, Michael Pilbrow, Mike Hettinger, Chris Bourke, Nick Martin and George Williams – are people for whom I have great respect. I was friends with most of them before the campaign began, and my admiration for them has only grown over past months.

I’m hoping to keep blogging, but have to think about the right way to evolve the blog (or whether to draw a line by starting a new blog in my capacity as an ALP candidate). So please forgive me while I try to sort that out.

In the meantime, I’m about to head to the US for what might be my last academic conference – the NBER economics of education meetings in Cambridge MA. I’ll be overseas from 26 April to 5 May. I haven’t seen Gweneth and my two little boys for nearly a month, and am missing them like crazy. Skype helps, but since the boys are aged 10 months and 3 years respectively, they don’t exactly want to talk to a computer screen for long.

For my wife Gweneth, this is going to be a particularly unusual experience. She passed her citizenship test last month, and becomes a dual Australian/US citizen on 4 June. So she’ll cast her first Australian ballot for her husband (if I’m lucky, that is..).

(a similar post was posted at Core Economics)

Posted in Australian Politics | 29 Comments

France Wins Clark Medal Again

Congratulations to Esther Duflo, French-born development economist extraordinaire and winner of this year’s John Bates Clark medal for the best US economist under 40. If you’ve never heard of Esther, check out her academic website or the Poverty Action Lab at MIT – which is reshaping the face of development economics.

Posted in Uncategorized | 2 Comments

Of Becker and Mills, Picasso and Friedman

I was interviewed recently for the newsletter of the Economic Sociology Australia society.

Posted in Economics Generally

Did the Tampa Stop Beazley Becoming PM?

Writing on InsideStory, Peter Brent argues:

But it is not clear that boat people really had much effect on the election result. When the Tampa arrived, the Howard government had already been steadily improving its opinion poll position from the early 2001 nadir. Tampa and, later, “children overboard” melted the talkback lines, but so do lots of issues that don’t change votes.

It was September 11, two weeks later, that sent Howard’s voting-intentions figure skywards, but by polling day they had subsided, and the result of fifty-one to forty-nine, while respectable for a government in good economic times asking for a third term, was no landslide.

To answer the question, we need regular and precise estimates of who is likely to win the election. Unfortunately, polls are pretty irregular, and very imprecise (evidence here, anecdote here). But betting markets provide a stable, daily estimate. Here’s the time series for 2001, with the Tampa incident and September 11 attacks marked on the chart.

image

The chart is from this paper. To my mind, it doesn’t support Brent’s argument that the Howard government were sailing to victory before the Tampa incident. But it does accord with his view that the September 11 attacks were pretty important.

Posted in Australian Politics | 1 Comment

Slow degrees, school vs jail, and cash 4 class

Three new economics papers offer interesting findings on important facets of education policy.

Increasing Time to Baccalaureate Degree in the United States by John Bound, Michael Lovenheim, Sarah Turner
Time to completion of the baccalaureate degree has increased markedly in the United States over the last three decades, even as the wage premium for college graduates has continued to rise. Using data from the National Longitudinal Survey of the High School Class of 1972 and the National Educational Longitudinal Study of 1988, we show that the increase in time to degree is localized among those who begin their postsecondary education at public colleges outside the most selective universities. In addition, we find evidence that the increases in time to degree were more marked amongst low income students. We consider several potential explanations for these trends. First, we find no evidence that changes in the college preparedness or the demographic composition of degree recipients can account for the observed increases. Instead, our results suggest that declines in collegiate resources in the less-selective public sector increased time to degree. Furthermore, we present evidence of increased hours of employment among students, which is consistent with students working more to meet rising college costs and likely increases time to degree by crowding out time spent on academic pursuits.

Education Policy and Crime by Lance Lochner
This paper discusses the relationship between education and crime from an economic perspective, developing a human capital-based model that sheds light on key ways in which early childhood programs and policies that encourage schooling may affect both juvenile and adult crime. The paper first discusses evidence on the effects of educational attainment, school quality, and school enrollment on crime. Next, the paper discusses evidence on the crime reduction effects of preschool programs like Perry Preschool and Head Start, school-age programs that emphasize social and emotional development, and job training programs for low-skill adolescents and young adults. Finally, the paper concludes with a broad discussion of education policy and its potential role as a crime-fighting strategy.

Financial Incentives and Student Achievement: Evidence from Randomized Trials by Roland G. Fryer
This paper describes a series of school-based randomized trials in over 250 urban schools designed to test the impact of financial incentives on student achievement. In stark contrast to simple economic models, our results suggest that student incentives increase achievement when the rewards are given for inputs to the educational production function, but incentives tied to output are not effective. Relative to popular education reforms of the past few decades, student incentives based on inputs produce similar gains in achievement at lower costs. Qualitative data suggest that incentives for inputs may be more effective because students do not know the educational production function, and thus have little clue how to turn their excitement about rewards into achievement. Several other models, including lack of self-control, complementary inputs in production, or the unpredictability of outputs, are also consistent with the experimental data.

I’m a tad distracted by other things at present, so apologies in advance for the fact that all three links are to the (gated) NBER website. Perhaps some kind soul will post ungated links in comments. The Fryer research is also in the latest issue of Time Magazine.

And if you still want more to read, Paul Krugman’s two new pieces on global warming and economic geography are masterful.

Posted in Economics of Education | 3 Comments

Talking Sin

My Wryside Economics segment on ABC Radio National’s Life Matters program yesterday was on sin taxes. If you’re curious to catch up on it, you can listen to it here.

Posted in Health economics, Tax

The Future Beaters

Inspired by the Netflix contest, Nicholas Gruen and Anthony Goldbloom have created Kaggle, a site where would-be predictors go head-to-head to build a model that best forecasts the future. You can read more about it at Club Troppo, and at the Kaggle site.

Their first competition is to build a model that predicts the results of Eurovision 2010. Given the large idiosyncratic component in this kind of contest, I’m not sure how well suited it is to prediction models (the model that best predicts the 2010 result is unlikely to be the model that best predicts the winners for 2010-2019). But it’s a clever way of getting the Kaggle idea out there quickly.

Statisticians of the world, unite. You have nothing to lose but your residuals.

(xposted @ Core Economics)

Posted in Prediction Markets | 1 Comment

Risky Business

On 22 April, I’m launching a project at the ANU Crawford School titled ‘New Social Policy Approaches for Sharing Risk’. More information here, including a flyer.

Posted in Coming Events

A tired old story

My op-ed today is on the economics of sleep. Full text over the fold.

Continue reading

Posted in Health economics, Labour Economics | 1 Comment

Everyone thinks they’re middle-class

Rob Bray points out to me some interesting data from 1999, in which Peter Saunders (SPRC, UNSW) asked respondents to place themselves in an income decile. Of course, 1/10th of the population falls in each decile, so if people are accurate, then the result should be 10 bars, each containing 1/10th of the population. But here’s what Saunders finds:

clip_image002

And for those who like decimal points with their data, here are the percentages:

Decile %
1 1.3
2 4.8
3 14.1
4 23.7
5 25.8
6 15.6
7 10.6
8 3.3
9 0.7
10 0.1

In other words, only 1/10th of those in the poorest decile know it, and only 1/100th of the top decile are willing to admit it.

A decade on, it’d be worth seeing whether Australian are any better informed about their true position in the income distribution than we were in 1999.

Posted in Inequality | 5 Comments

Prediction markets, where art thou?

I’ve been writing for nearly a decade (much of it with Justin Wolfers) about the predictive power of election betting markets. So why is it that now I’m running for ALP preselection in Fraser, none of the election betting websites can tell me my odds?

Posted in Australian Politics | 6 Comments

Top Incomes in Australia, Updated

Some years ago, I published a paper with Tony Atkinson looking at trends in Australian top incomes since 1921. We’ve now updated the results to the 2007-08 tax year (the latest available from the ATO). Here’s the Excel spreadsheet. The ANU media release is over the fold.

Continue reading

Posted in Inequality

Social Mobility in China

Cathy Gong, Xin Meng and I have a new paper out, looking at intergenerational mobility in urban China. After making a bunch of adjustments to the data, we find a strikingly high intergenerational elasticity (implying a very low level of social mobility). The abstract is below – click on the title for the full paper.

Intergenerational Income Mobility in Urban China
This paper estimates the intergenerational income elasticity for urban China, paying careful attention to the potential biases induced by income fluctuations and life cycle effects. Our preferred estimates are that the intergenerational income elasticities are 0.74 for father-son, 0.84 for father-daughter, 0.33 for mother-son, and 0.47 for mother-daughter. This suggests that while China has experienced rapid growth of absolute incomes, the relative position of children in the distribution is largely determined by their parents’ incomes. Investigating possible causal channels, we find that parental education, occupation, and Communist Party membership all play important roles in transmitting economic status from parents to children.

Posted in Inequality | 1 Comment

Mexican antipoverty program might work in the US too

Don Arthur alerts me to a new report from MDRC (the organisation that administers many of the US randomised trials) on Opportunity NYC, a conditional cash transfer program in New York city that’s based loosely on the Mexican Progresa/Oportunidades program. Here’s the overview:

In 2007, New York City’s Center for Economic Opportunity launched Opportunity NYC–Family Rewards, an experimental, privately funded, conditional cash transfer (CCT) program to help families break the cycle of poverty. CCT programs offer cash assistance to reduce immediate hardship, but condition these transfers on families’ efforts to build up their “human capital,” often by developing the education and skills that may reduce their poverty over the longer term. Family Rewards is the first comprehensive CCT program in a developed country.

Aimed at low-income families in six of New York City’s highest-poverty communities, Family Rewards ties cash rewards to pre-specified activities and outcomes in children’s education, families’ preventive health care, and parents’ employment. The three-year program is being operated by Seedco — a private, nonprofit intermediary organization — in partnership with six community-based organizations. It is being evaluated by MDRC through a randomized control trial involving approximately 4,800 families and 11,000 children, half of whom can receive the cash incentives if they meet the required conditions, and half who have been assigned to a control group that cannot receive the incentives. This report presents initial findings during the program’s early operating period.

Key Findings
Despite initial challenges in understanding the program’s large number of incentives and related payment requirements, nearly all families eventually earned rewards — more than $6,000, on average, over the first two years. In addition, effects from Family Rewards varied across a wide range of outcome measures — for example, the program:
? Reduced current poverty and hardship, including hunger and some housing and health care hardships
? Increased savings and the likelihood that parents would have bank accounts, and reduced the use of alternative banking institutions (such as check cashers)
? Did not improve school outcomes overall for elementary or middle school students, but did increase school attendance, course credits, grade advancement, and standardized test results among better-prepared high school students
? Somewhat increased families’ continuous use of health insurance coverage, reduced their reliance on hospital emergency rooms for routine care, and increased their receipt of medical care
? Substantially increased families’ receipt of preventive dental care
? Increased employment in jobs that are not covered by the unemployment insurance (UI) system but reduced employment in UI-covered jobs

Because only the first 12 to 24 months of the program are covered — including a “start-up” phase during which operational “kinks” were being worked out — it is too soon to draw firm conclusions about the full potential of Family Rewards. Future reports will present longer-term findings, eventually covering all three years of program operations plus two additional years after the cash incentives are no longer offered.

Or to put it in context:

The findings indicate that Family Rewards led to small increases in elementary and middle school students’ participation in extracurricular activities and in the extent to which their parents were engaged with their schooling, but it had few effects on attendance or test scores. Among the older students, the program led to large and consistent gains in school progress for a subgroup of more academically prepared ninth-graders. For students in that subgroup, who may have been in a better position to take advantage of the incentives, the program increased attendance and school progression, namely promotion to the tenth grade and number of credits earned. These effects are encouraging and on a par with those found from other, more intensive, school-based interventions

The really interesting question will be whether these impacts are sustained when the cash stops flowing. Nonetheless, the early results are pretty encouraging, and suggest that these kids of innovative programs are at least worth considering in Australia, particularly for Indigenous communities.

Update: The NYT reports that the results have been too modest for NYC to make this a publicly-funded program (HT: AK).

Posted in Economics of Education, Economics of the Family, Health economics | 1 Comment

What’s the Evidence on Evidence Based Policy?

Last year, the Productivity Commission ran an event on the topic ‘Strengthening Evidence-based Policy in the Australian Federation’, of which I was one of the participants (my contribution was titled: ‘Evidence-based policy: summon the randomistas?’). The PC has now produced a mighty two-volume set, which is also available on their website. If you’re short on time, go to the background report (volume two), which is likely to become a standard reference for anyone thinking about evidence-based policy in Australia. We’ll see if George Pell gets around to reading Appendix A.

Posted in Australian Politics, Economics Generally, Randomisation | 4 Comments

Experiment

The Sunday Age has a selection of 15 tips to improve your life, including – bizarrely – advice from an economist (#13). What do these dismal scientists think they know about happiness?

Posted in Eclectic Observations | 1 Comment

Sin Tax Error?

My AFR op-ed today is on tobacco and alcohol taxes. Full text over the fold. Some references are hyperlinked, and there’s more detail at the end of the piece.

Continue reading

Posted in Tax | 2 Comments

The link between terrorism and trash collection

I wrote recently about the work that UCSD economist Eli Berman has been doing on the relationship between social service provision and terrorism. His team now has a new website for their research, which Eli tells me will be updated regularly, including with results from Afghanistan.

Posted in Economics of National Security | 1 Comment

Worms, dials and buttons

In yet another insightful post, Scott Steel (aka Possum Comitatus) blogs on the different ‘worm technologies’ used to follow yesterday’s debate.

Is anyone sitting on data that contains both a transcript and the worm level? I’d be curious to see if there are systematic patterns.

Posted in Australian Politics

Of stockmarkets and supermarket queues

My Wryside Economics segment today was on investing in the sharemarket. I discussed Burton Malkiel’s classic A Random Walk Down Wall Street, and the merits of index funds. If you’re not a regular ABC Radio National listener, you can find the audio here.

Posted in Finance

Home Computers and Human Capital

Some Romanian evidence on the vexed question of how home computers impact children’s learning.

Home Computer Use and the Development of Human Capital (gated stable link, ungated unstable link)
Ofer Malamud and Cristian Pop-Eleches
This paper uses a regression discontinuity design to estimate the effect of home computers on child and adolescent outcomes. We collected survey data from households who participated in a unique government program in Romania which allocated vouchers for the purchase of a home computer to low-income children based on a simple ranking of family income. We show that children in households who received a voucher were substantially more likely to own and use a computer than their counterparts who did not receive a voucher. Our main results indicate that that home computer use has both positive and negative effects on the development of human capital. Children who won a voucher had significantly lower school grades in Math, English and Romanian but significantly higher scores in a test of computer skills and in self-reported measures of computer fluency. There is also evidence that winning a voucher increased cognitive ability, as measured by Raven’s Progressive Matrices. We do not find much evidence for an effect on non-cognitive outcomes. Finally, the presence of parental rules regarding computer use and homework appear to mitigate the effects of computer ownership, suggesting that parental monitoring and supervision may be important mediating factors.

Posted in Economics of Education

Turning an eye to the CPI

Update: All ABS submission to the inquiry are now online. For my money, the most enlightening is point 3.2.2 of the Australian Treasury submission.

~~~~~~~~

The ABS are undertaking the first major review of the Consumer Price Index in 13 years, and Rob Bray (who has just moved into the office next door) has just put a very detailed submission. If you don’t have time to read the entire 58 pages, here’s Rob’s summary:

Continue reading

Posted in Macroeconomics

Understanding Tax Evasion

As regular blog readers will know, I’m a big fan of randomisation. In the context of tax audits, this is particularly useful. Though politically controversial, random audit experiments like the US TCMP have taught us a lot about who underreports tax. And now a new two-stage experiment in Demark is revealing other lessons. Perhaps Australia – which has never had a random audit of personal income taxpayers – could follow suit.

Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark (gated stable link, ungated unstable link)
Henrik Kleven, Martin Knudsen, Claus Kreiner, Soren Pedersen and Emmanuel Saez
This paper analyzes a randomized tax enforcement experiment in Denmark.  In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment.  Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited.  The following year, “threat-of-audit” letters were randomly assigned and sent to tax filers in both groups.    Using comprehensive administrative tax data, we present four main findings.  First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income.  Since 95% of all income is third-party reported, the overall evasion rate is very modest.  Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses.  Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit.    Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter.  All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes.

Update: On a similar theme, here’s Tim Harford on why policymakers should do more randomised trials.

Posted in Randomisation, Tax | 3 Comments

Does Mum’s Age Matter?

Xiaodong Gong and I have a paper in the latest issue of the Australian Economic Review. Abstract below.

Does Maternal Age Affect Children’s Test Scores?
Andrew Leigh and Xiaodong Gong
We estimate the relationship between maternal age and child outcomes, using indices aimed at measuring overall outcomes, learning outcomes and social outcomes. In all cases,we find evidence that children of older mothers have better outcomes. Not only do children born to mothers in their twenties do better than children born to teen mothers, but children born to mothers in their thirties do better than children born to mothers in their twenties. However, when we control for other socioeconomic characteristics, such as family income, parental education and single parenthood, the coefficients on maternal age become small and statistically insignificant. The only exception is an index of social outcomes, which is positively associated with maternal age, even controlling for socioeconomic factors. For cognitive outcomes, young motherhood appears to be a marker, not a cause, of poor child outcomes.

An easy way to see the result is to compare the relationship between maternal age and child outcomes first without any socioeconomic controls:

image

(strong positive relationship, mostly statistically significant)

…and then with socioeconomic controls:

image

(virtually no relationship, generally statistically insignificant).

Posted in Uncategorized | 1 Comment

The Last Australian Shoe Manufacturers

I had a throwaway line in my op-ed this morning.

What will a company tax rise do to prices? While the evidence is thin, theory suggests that companies will be most likely to put up prices on consumers when they do not face competition from importers. So an Australian shoe manufacturer (do we have any left?) may be unable to shift the burden to consumers. But a fast food outlet will have greater capacity to raise prices.

Which prompted this informative response:

Dear Andrew,

After reading your piece in the AFR this morning I thought I’d answer your question: Are there any shoe manufacturers left in Australia? Despite the fact that the footwear industry has undergone massive restructuring, redundancies, factory closures, tariff elimination (despite competitor countries’ excessive rates) and now, almost no government assistance, there is still a solid footwear manufacturing industry in place.

The industrial/safety market within our country is well supplied by local manufacturers such as Oliver & Stevens, Steel Blue, Rossi Boots, Mongel Boots, Redback and Taipan Footwear – these companies continue to make shoes in Australia and supply not only our industrial needs but also critical areas such as the defence forces, fire fighters and police.

In the general consumer area the iconic Australian brand R.M.Williams has an impressive South Australian factory where all their boots are made. In the fashion area companies like J.Robins in Sydney continue to design and manufacture footwear for the women of Australia.

Footwear manufacturing is a very labour intensive industry and, despite the best technology, is a tough business to be in when we have no competitive advantage in the employment of people. However, those manufacturers that remain in Australia have a passion for the industry and a determination to survive.

An interesting resource to find more about the TCF industry is Professor Roy Green’s "Building Innovative Capacity – Review of  the Textile, Clothing and Footwear Industries, 2008"

Regards

Phil Butt
President
Footwear Manufacturers Association of Australia.

Posted in Uncategorized | 1 Comment

Who ends up footing the company tax bill?

My AFR op-ed today is on the economic incidence of company taxes. The draft benefited from comments by Nicholas Gruen and an anonymous friend. Full text over the fold.

Continue reading

Posted in Tax | 5 Comments

A Capital Challenge

Watching the attempts of the red-shirts to change the Thai government by bringing Bangkok to a standstill, I was reminded of the observation that Alberto Alesina and Ed Glaeser make in their book Fighting Poverty. In countries where the largest city is also the capital, it’s easier for mass movements to bring about populist reforms. For example you could mobilise a bigger crowd in Paris or Brussels than you could in Washington DC or Ottawa, which goes part way towards explaining the different political complexion of the two sets of countries.

At this point, I wonder if Thai leadership are ruing the eighteenth-century decision to move the seat of government from Thonburi to Bangkok?

Posted in Economics of Elections | 3 Comments

Leaders as Readers (sequel)

In a slight departure, my ABC Radio National Wryside Economics segment today had almost nothing to do with economics. Instead, I spent the time talking about the piece that Macgregor Duncan and I wrote on reading and political leadership. You can download it here.

Posted in Australian Politics, Books | 1 Comment

T4A

Teach for Australia, a new program started this year, is now taking applications for its 2011 cohort. Closing date is 6 April 2010.

Posted in Jobs | 3 Comments