Isaac Delestre, Wojciech Kopczuk, Helen Miller, Kate Smith, 03 August 2022

The share of pre-tax income flowing to the top of the UK income distribution is significantly higher than it was in the early 1980s. This column explains the nature of top incomes in the UK and how they are taxed. Overall, the authors argue, UK income taxes are progressive, with average tax rates rising with income. But incomes from business ownership and investment are taxed at lower rates than employment income. With a reformed tax base, there would be a strong case to align tax rates across different sources of income. 

Mathias Hoffmann, Emanuel Moench, Lora Pavlova, Guido Schultefrankenfeld, 03 August 2022

In 2022, consumer price inflation in the euro area has climbed to record highs. As a result, many households have increased their inflation expectations, thus increasing the risks of more persistent inflation in the future. Using the Bundesbank Online Panel Households as a laboratory, this column provides evidence that individuals who are shown ECB communication on the inflation outlook significantly reduce their inflation expectations. Furthermore, explaining the outlook verbally has a substantially larger effect than merely providing numerical projections. 

Thomas Blanchet, Emmanuel Saez, Gabriel Zucman, 03 August 2022

Inequality statistics come with a lag relative to growth statistics. This column presents new real-time inequality statistics for the US, synchronised with growth statistics, which show that all income groups recovered their pre-crisis pre-tax income level within 20 months of the beginning of the Covid-induced recession. Covid-related transfers drastically but temporarily increased disposable incomes for the bottom 50%, well above their pre-Covid levels. Real wages experienced significant gains at the bottom of the distribution, highlighting the equalising effects of tight labour markets. 

Filippo Natoli, 02 August 2022

How temperature dynamics affect the economy is key to understanding the impact of climate change on monetary policy. This column presents new evidence that local temperature fluctuations had aggregate effects on the US in the last 50 years. Results show that US-wide temperature shocks, constructed by weighting unexpected county-level temperature variations, reduced both GDP and consumer prices, inducing an expansionary monetary policy reaction and a revision of the Federal Reserve’s economic forecasts.

Shira Cohen, Igor Kadach, Gaizka Ormazabal, Stefan Reichelstein, 02 August 2022

Environmental, social, and governance metrics are receiving increasing attention as a measure of corporate performance. This column uses cross-sectional data to assess the prevalence and impact of including such metrics in executive compensation schemes. Usage of ‘ESG pay’ has grown rapidly in the past decade, with over 30% of firms including ESG metrics in their key performance indicators in 2021. It is more common in countries perceived to be sensitive to ESG concerns. Firms adopting ESG pay do receive more favourable ESG scores from rating agencies, but the impact on shareholder wealth is ambiguous. 

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