Political Economy Research Institute

Setting a Financial Transaction Tax Rate that Optimizes Revenues

To inform debates on the most effective ways to design financial transaction taxes, Robert Pollin and James Heintz review evidence on trading costs and elasticities in U.S. financial markets and elsewhere. They examine the potential impact of a proposed FTT rate of 0.03 percent on all financial market trades currently being discussed in Congress. This low figure contrasts with the existing 0.5 percent rate on the UK stock market, for example. The authors show that there is no reasonable scenario in which this low rate could generate more revenues than a 0.5 percent FTT. They find that a 0.5 percent FTT generates between 3 and 17 times more revenue than the tax under consideration. 

>> Download “Transaction Costs, Trading Elasticities and the Revenue Potential of Financial Transaction Taxes for the United States” 

The Roots of Inequality Worldwide

Azizur Khan explores the causes behind the growth in both inequality and the social tolerance of that inequality over the last seven decades. He argues that these trends were not determined by inevitable technological, economic or historical forces, but were shaped by policy choices. Khan maintains that the demise of socialist systems and the quest for non-capitalist development in the Third World, alongside the emergence of capitalism as the only economic system, do not signal the end of the pursuit of equality. Khan concludes that plenty of paths remain available to societies that are serious in their pursuit of the goal. 

>> Download "Inequality in Our Age"

How to Create 19 Million Jobs and Push Unemployment Below 5 Percent

Robert Pollin, James Heintz, Heidi Garrett-Peltier and Jeannette Wicks-Lim show that since 2009, U.S. commercial banks and large nonfinancial corporations have been carrying huge cash hoards and other liquid assets, totaling $1.4 trillion. Small businesses, by contrast, have been locked out of credit markets. The authors examine the impact on job creation of mobilizing these excess liquid assets into productive investments, finding that U.S. employment could expand by about 19 million jobs by the end of 2014, with unemployment falling below 5 percent. The paper discusses policies to transform these hoards into job-generating investments, both for the national economy and, specifically, the Los Angeles and Seattle regions. 

>> Download "19 Million Jobs For U.S. Workers: The Impact Of Channeling $1.4 Trillion In Excess Liquid Asset Holdings Into Productive Investments"

Credit Access for Small Businesses in Africa

Mina Baliamoune-Lutz, Zuzana Brixiová, and Léonce Ndikumana examine how small and medium enterprises in Africa struggle to access credit, due to unclear property rights and the lack of assets that can be used as collateral. They present a model in which firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. They test it using a sample of twenty African countries over the period 2005-09, and find that policies aimed at easing credit constraints would stimulate productive entrepreneurship and private sector employment in Africa. 

>> Download “Credit Constraints and Productive Entrepreneurship in Africa” 

Is Military Spending the Right Route to Jobs? An Updated Analysis

Given the recent attention to potential cuts to the federal defense budget, Robert Pollin and Heidi Garrett-Peltier revisit their assessment of the employment-creation potential of military spending. As in the previous editions of this study (2007 and 2009), they find, unequivocally, that government spending on the military is a far weaker engine of job growth than are investments in clean energy, health care, or education, and is even weaker than spending the same amount on household consumption. Pollin and Garrett-Peltier also find that alternative productive investments create a much larger number of jobs across all pay ranges. 

>> Download “The U.S. Employment Effects of Military and Domestic Spending Priorities: 2011 Update” 

Does the Deficit Threaten Growth? Assessing the Risks of Borrowing vs. Austerity

Thomas Ferguson and Robert Johnson examine debates over the federal deficit in the context of the G-20's focus on austerity. They review current theories on the impact that deficits have on growth, and find that none makes a convincing argument that austerity is an effective stimulus. They assess the drivers behind the rising federal deficit, and conclude that "the risk to U.S. public much greater on a trajectory of austerity than from any risks incurred by the very low public cost of borrowing to spur investment in infrastructure, education, and science that would generate large social and private gains in productivity."

>> Download “A World Upside Down? Deficit Fantasies in the Great Recession”

Dodd-Frank and the Structural Issues Underlying the Crisis

In this working paper, Jane D’Arista argues that the Dodd-Frank Act is worthy of careful analysis because it lays out the structural issues underlying the financial crisis. She discusses two major aspects of the Act, pointing out how it both succeeded and failed in identifying and addressing structural faults in the global system. D’Arista sees success in provisions that deal with the interconnectedness of financial institutions, but expresses concern about the Act’s reaffirmation of pro-cyclical capital requirements as the primary tool in the post-crisis regulatory framework.

>> Download "Reregulating and Restructuring the Financial System: Some Critical Provisions of the Dodd-Frank Act"

Gordon Hall