Research

Working Papers

Labor Share Dynamics: The Role of Import Competition [Paper]

Does increasing product-market competition from foreign firms affect domestic labor shares? By combining detailed Swedish firm-level data with an instrumental variable de- sign that identifies an exogenous increase in global competition, I show that an increase in import penetration in the domestic market results in a decrease in industry-level labor shares. The decrease comes both from a reallocation of firms’ market shares and a fall in labor shares at the firm level. Further, the analysis shows that the negative association between competition and labor shares is driven by an increase in productivity that is not met by a corresponding increase in compensation to labor. I use these findings to calibrate a heterogeneous-firm model where domestic and foreign firms compete on the domestic product market and evaluate the welfare consequences of an increase in import penetration. In terms of welfare an increase in foreign competition corresponding to a one standard deviation increase in import penetration results in a 1.12 percentage point increase in welfare.

Does Inflation Targeting Reduce the Dispersion of Price Setters’ Inflation Expectations? [Paper]

Abstract: Using detailed Swedish micro data on prices and costs, this paper documents a decrease in the dispersion of changes in prices and markups following the introduction of an official inflation target of 2 percent. Using a structural model to decompose the change in the price-change distribution by potential explanatory factors, about 63 percent of the decrease in the price-change dispersion can be attributed to a decrease in the cross-sectional variance of inflation expectations. The lower dispersion of inflation expectations results in a lower markup dispersion and a welfare gain equivalent to a 0.79 percent increase in consumption.

Dual Income Taxation and Wealth Inequality (with Markus Ridder and Kerstin Westergren) [Available shortly]

Abstract: Since several decades, wealth inequality has increased in many countries. Do changes in the tax system contribute to these trends? Using a quantitative model, we examine the effect on wealth inequality of changing from a comprehensive to a dual tax system. We start out from a standard open-economy incomplete-markets model, to which we add an entrepreneurial sector. The entrepreneurs in the model exploit the duality of the tax system after the reform by declaring income as capital (taxed at a flat rate) rather than labor income (taxed progressively). The model is parameterized to match the characteristics of the Swedish economy under dual taxation. In contrast to previous studies, we estimate the parameters of the stochastic process for entrepreneurial income using micro-data observations. We find that the introduction of a dual tax system increases wealth inequality, aggregate capital and the share of entrepreneurs in the model economy. The possibility of entrepreneurs to declare income as capital plays an important role for the results.