see an excellent article from 2013
Harvard’s Gopinath Helps France Beat Euro Straitjacket
When French President Francois Hollande unveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.
Gopinath, 41, a professor at
Gopinath’s support for the theory took shape through her
years teaching at Harvard and the
“Gita is already a major star, at the top of her cohort in international macroeconomics and still rapidly growing as a scholar,” Rogoff said in an e-mail. “Her empirical work on price rigidities is simply stunning and has had everyone going back to the drawing boards. Her theoretical work on international debt and default defines the state of the art in the field,” he said, calling her strategies for the euro zone to achieve internal devaluations “very influential.”
Parental Advice
Gopinath’s path to becoming an economist and the first
Indian woman to receive tenure at Harvard began almost by chance in the South
Indian city of
The best way to achieve that, they were told by some friends
in the services, was for Gopinath to get a bachelor’s degree in
economics from the
“It was purely accidental,” Gopinath said in a telephone interview. “Luckily, I found out fairly quickly that I had more of an academic leaning and little aptitude for administration.”
Economics Degree
Her bachelor’s degree in economics from the university’s
Her Ph.D. thesis, titled “Three Essays on International Capital Flows: A Search Theoretic Approach,” was far ahead of its time, said Rogoff, who has an office a few doors from hers at Harvard and describes her as a “gifted and popular” teacher.
She advocated fiscal devaluation for Europe’s currency union
in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former
student Oleg Itskhoki, an assistant professor at Princeton in
Formal Analysis
“Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations,” they wrote. “This paper is intended to bridge this gap.”
The paper examines a “remarkably simple alternative” that doesn’t require countries to abandon the euro and devalue their currencies, Gopinath said. By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation.
The higher VAT raises the price of imported goods as foreign companies pay the levy. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT exempt, the payroll-cost saving allows producers to sell goods cheaper overseas, simulating the effect of a weaker currency, according to the paper.
The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath said.
Competitive Edge
Hollande is seeking to revive
Aghion, who co-wrote a column in Le Monde newspaper last
October advocating Gopinath’s theory, said Gallois proposed to Hollande
that it’s the right strategy for
“We contributed to the adoption of the policy by Hollande,
and Gallois called to thank me,” Aghion said in a telephone interview. “There
is wider interest in the policy.
Provoking Criticism
Gopinath’s analysis and Aghion’s push for its adoption in
“In fact, the first person to put forward the idea was Keynes himself in 1931,” Aghion said. “Because of the gold standard at the time, it was not possible to devalue the pound. So he proposed fiscal devaluation as a way to achieve the same goals.”
Concerns that such a plan “will conflict with euro rules can be met by simply pointing out that Germany’s government carried one out in 2007, though by another name, when it raised VAT from 16 percent to 19 percent and cut employers’ contribution to social insurance from 6.5 percent to 4.2 percent,” Gopinath, Farhi and Itskhoki wrote in a Mar. 1, 2012, commentary.
Among central bankers, Gopinath singles out Bernanke and the European Central Bank’s Mario Draghi as those who “stepped up to the task of responding in a timely and aggressive manner” to the challenges facing their nations and the global economy.
Less Praise
She has less praise for policy makers in her country of
birth.
The shortfall has triggered memories of
“The reason I’m an international economist now is partly
because of the exposure I had back then,” said Gopinath, who was in
college in
Policy Overhaul
After months of impasse, Prime Minister Manmohan Singh in
September began a policy overhaul to limit subsidies, lure foreign investment
and speed up infrastructure projects as the economy looks set to expand the
least in a decade. Still,
She said she doesn’t expect to be tapped by the Indian
government like Raghuram Rajan, chief economic adviser to the finance ministry
and former chief economist at the IMF. Still, the success of Gopinath, and
India-born Amartya Sen, who won the Nobel Prize for economics in 1998, belies
Only 63 percent of people older than 15 could read in 2006,
compared with 94 percent in
Career Guidance
Gopinath has served on committees at Harvard’s economics department to provide women students with career guidance.
In the U.S., female MBA graduates are paid less than their male peers, a Bloomberg Businessweek survey shows, and only one- third of Ph.D. economists are women, a ratio that has changed little since 1995, the American Economic Association has said. At universities, 44 percent of women faculty had tenure in 2011-12, compared with 62 percent of men, according to the American Association of University Professors.
“You need a pipeline,” Gopinath said. “You need to encourage women early on. It can’t be fixed by requiring more women to be hired.”
She and her husband, director of policy at the Massachusetts
Institute of Technology’s Abdul Latif Jameel Poverty Action Lab in
While women academics still lag behind men when it comes to mentoring and networking, Gopinath said she hasn’t felt any bias. “It has been a very difficult path for women in the past,” she said. “That’s changing.”
To contact the reporter on this story: Rina Chandran in
To contact the editor responsible for this story: Stephanie Phang