Yan Liang

We examine the effects of income redistribution on output and welfare by generalizing Bénabou’s (2002) economy to incorporate two new elements: physical capital and social knowledge externalities. Income inequality, sustained by unequal privileges to private education and parental networking in the absence of a credit market, interacts with these added features. These interactions theoretically link four seemingly unrelated global trends: increased capital share in production due to automation, rising income inequality, slower knowledge diffusion, and declining productivity growth, offering new insights into growth- and welfare-enhancing redistributive policies. Automation, reflected in the growing importance of physical capital in production, and capital-ownership concentration worsen unequal educational opportunities and, in turn, income inequality, which slows productivity growth through two underexplored channels. First, we provide empirical support for the idea that higher inequality hampers knowledge diffusion to lower the economy’s social knowledge stock, thereby hindering children’s learning from the existing know-how through the knowledge externality channel. Second, greater heterogeneity in knowledge absorption due to more unequal access to education reduces average human capital accumulation because of diminishing returns to investment. Progressive redistribution helps counteract these adverse effects, pushing the economy’s productivity frontier outward, especially for countries with lower social cohesion, going beyond Bénabou’s (2002) finding of reduced resource misallocation. Optimal redistribution balances these benefits against potential distortions to labor supply and savings. Simulations using OECD data show sizable gains in output, aggregate efficiency (as defined in Bénabou, 2002), and welfare from moving toward optimal redistributive rates, though with varying effects across countries.

Public engagement: Submission to Victoria’s Land Transfer Duty Inquiry; commentary in CEDA and Austaxpolicy Blog.

Our spatial general equilibrium model evaluates the impact of stamp duty reforms on social welfare through two channels: the direct positive impact on housing market outcomes and the indirect boost to national productivity due to better labor allocation. Analyzing detailed spatial data from Australia, we find that reducing stamp duties generates welfare gains of 3.57%, with the productivity channel accounting for 95% of these gains. This highlights the significant benefits of stamp duty reforms beyond the housing market.

This study examines the implications of variable markups for resource misallocation and for aggregate productivity. Using manufacturing data from India, I show that variable markups alone account for a small fraction of the dispersion in revenue productivity when allowing for other sources of misallocation. Meanwhile, variable markups are crucial to understanding the aggregate consequences of policies that reduce misallocation. When equalizing marginal products across firms in narrowly defined industries, my model generates a smaller total factor productivity gain than does a model that uses constant markups because more productive firms endogenously choose higher markups. Thus, the indirect costs of markups are higher than one might expect.

This study examines how costly financial contracting and weak contract enforcement influence firms’ outsourcing decisions. A multisector neoclassical model in which external investors can play a role in monitoring suppliers is developed. Financial development improves investors’ monitoring efficiency and encourages firms to outsource more production, particularly to suppliers that are more dependent on external finance. The global financial crisis is used along with firm-level data from the United Kingdom to provide causal evidence of this channel. The model is then calibrated to match the borrowing costs of 88 countries and is used to quantify the effects of financial development on total factor productivity. Setting borrowing costs to the level in the United States leads to an average 7% increase in aggregate productivity for these countries.

I use a quantitative growth model with intangible investments and endogenously variable markups, along with U.S. manufacturing data to infer the overall size of payments to intangible capital. These payments account for about 19% of manufacturing output, almost on par with physical capital and significantly higher than economic profits.