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  • Author: Alan Reynolds
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Estimates of the elasticity of taxable income (ETI) investigate how high‐​income taxpayers faced with changes in marginal tax rates respond in ways that reduce expected revenue from higher tax rates, or raise more than expected from lower tax rates. Diamond and Saez (2011) pioneered the use of a statistical formula, which Saez developed, to convert an ETI estimate into a revenue‐​maximizing (“socially optimal”) top tax rate. For the United States, they found that the optimal top rate was about 73 percent when combining the marginal tax rates on income, payrolls, and sales at the federal, state, and local levels. A related paper by Piketty, Saez, and Stantcheva (2014) concluded that, at the highest income levels, the ETI was so small that comparable top tax rates as high as 83 percent could maximize short‐​term revenues, supposedly without suppressing long‐​term economic growth. Such studies could be viewed as part of a larger effort to minimize any efficiency costs of distortive taxation while maximizing assumed revenue gains and redistributive benefits.
  • Topic: Economics, History, Tax Systems, High-Income People
  • Political Geography: North America, Global Focus, United States of America
  • Author: Isabella M. Pesavento
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Adoption, particularly adoption out of foster care, has not been well studied within the field of economics. Researchers may avoid this topic because the adoption market greatly deviates from a typical market, and the system and data collection are highly fragmented, with relatively little federal coordination. Rubin et al. (2007) and Thornberry et al. (1999) show that instability in foster care placements produces negative welfare outcomes, and Hansen (2006), Barth et al. (2006), and Zill (2011) demonstrate that adoption out of foster care is socially and financially beneficial. Yet, children waiting to be adopted out of foster care are in excess supply, which has been exacerbated in recent years. I hypothesize that this is, in part, due to misaligned incentives of government officials and the contracted foster care agencies. I show that earnings are prioritized over ensuring permanent child placement, which hinders the potential for adoption, and government oversight fails to correct such iniquities because of career interests.
  • Topic: Economics, Government, Markets, Children, Incentives, Foster Care, Adoption
  • Political Geography: North America, United States of America
  • Author: Scott Lincicome
  • Publication Date: 01-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Labor market and cultural disruptions in the United States are real and important, as is China’s current and unfortunate turn toward illiberalism and empire. But pretending today that there was a better trade policy choice in 2000—when Congress granted China “permanent normal trade relations” (PNTR) status and paved the way for broader engagement—is misguided. It assumes too much, ignores too much, and demands too much. Worse, it could lead to truly bad governance: increasing U.S. protectionism; forgiving the real and important failures of our policymakers, CEOs, and unions over the last two decades; and preventing a political consensus for real policy solutions. Indeed, that is happening now.
  • Topic: International Relations, Economics, Markets, Bilateral Relations, Trade, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: John A. Allison
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Covid‐​19 pandemic greatly increased the scope and power of the Federal Reserve. The Fed created a number of new emergency lending facilities, which allowed it to make off‐​balance sheet loans and buy the debt of corporations and municipalities through special purpose vehicles backstopped by the Treasury under the CARES Act. Meanwhile, the Fed’s large‐​scale asset purchase program, known as quantitative easing (QE), was put on steroids after the pandemic struck in March 2020. The Fed has been purchasing longer‐​term Treasuries and mortgage‐​backed securities amounting to $120 billion per month, pushing the size of its balance sheet to an astonishing $7 trillion.
  • Topic: Economics, Monetary Policy, Federal Reserve, Pandemic, COVID-19
  • Political Geography: North America, United States of America
  • Author: Michael J. Casey
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: For all the upheaval of 2020, it’s perhaps not surprising that the 50‐​year anniversary of a major piece of financial legislation came and went with little fanfare. But the 1970 U.S. Bank Secrecy Act (BSA) deserves much scrutiny.1 In mandating that financial institutions maintain customer identity records and report illicit activity to government agencies, the BSA was a landmark statute by any measure. It paved the way to an ever‐​expanding system of international surveillance that’s a cornerstone of U.S. economic power.
  • Topic: Economics, Government, Finance, Surveillance
  • Political Geography: North America, United States of America
  • Author: Jeb Hensarling, Phil Gramm, John B. Taylor
  • Publication Date: 06-2021
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: The Fed’s huge balance sheet allows it to engage in credit policy (the composition of the balance sheet is by definition credit policy), which inherently auto‐​resides in fiscal policy — but should auto‐​reside with Congress. This discussion, moderated by John B. Taylor, took place at the Cato Institute’s 38th Annual Monetary Conference on November 19, 2020. The transcript has been edited for publication.
  • Topic: Economics, Monetary Policy, Federal Reserve, Credit
  • Political Geography: North America, United States of America
  • Author: Simon Lester, Huan Zhu
  • Publication Date: 01-2020
  • Content Type: Journal Article
  • Journal: The Cato Journal
  • Institution: The Cato Institute
  • Abstract: Donald Trump was a trade “hawk” long before he became president. In the late 1980s, he went on the Oprah Winfrey show and complained about Japan “beating the hell out of this country” on trade (Real Clear Politics 2019). As president, he has continued with the same rhetoric, using it against a wide range of U.S. trading partners, and he has followed it up with action (often in the form of tariffs). While many countries have found themselves threatened by Trump’s aggressive trade policy, his main focus has been China. As a result, the United States and China have been engaged in an escalating tariff, trade, and national security conflict since July 2018, when the first set of U.S. tariffs on China went into effect and China retaliated with tariffs of its own. In this article, we explore the U.S.-China economic conflict, from its origins to the trade war as it stands today. We then offer our thoughts on where this conflict is heading and when it might end.
  • Topic: Economics, International Trade and Finance, Tariffs, Trade Wars, Donald Trump
  • Political Geography: China, Asia, North America, United States of America