Since the start of the pandemic in 2020, the Federal government has been extremely involved in the U.S. economy. Stimulus after stimulus has been passed by Congress without much thought about the externalities of such new policies. One of the largest interventions by the government over this time period has been the increased amount of unemployment insurance benefits available to individuals that have lost their jobs.
The Group of Seven (G7), which consists of seven wealthy democracies including Canada, France, Germany, Italy, Japan, the UK, and the US, met over the weekend to consider a ‘global minimum corporate tax rate’. A new minimum rate of at least 15% was tentatively agreed on.
Congress will soon be passing a new Covid-19 stimulus package worth nearly $900 billion. This new package provides relief for individuals that are unemployed by extending federal unemployment insurance programs as well as providing an additional $300 per week benefit. It also includes loans for businesses, testing and vaccine funds, as well as funding for schools.
Adam Smith (1723-1790), explained why some countries were rich while others were poor in his 1776 seminal book The Wealth of Nations. Since Smith, and despite efforts by economists and government to explain differences between wealthy and poor nations, the wealth gap continues to widen. Several factors may determine to some degree the wealth of a nation. These include, but are not limited to decentralization, corruption, democracy, education, trade, and institutions.
Barriers to entry such as fees, licensing, or educational requirements, make it more difficult to start businesses in many countries. Problematically, many barriers to entry are due to regulatory capture and only serve to benefit incumbent firms and businesses. These regulations that are created and enforced by the government often make it exceedingly difficult for low-income individuals to start new businesses or new careers in many industries. By discouraging or even denying individuals access to higher paying occupations, barriers to entry tend to increase income inequality. In this analysis, we estimate empirically the effect that barriers to entry have on income inequality.