“After Piketty”, 12 policy proposes to reduce inequality of outcomes

“The media storm surrounding the publication of Thomas Piketty’s remarkable Capital in the Twenty-First Century (2014) has ensured that inequality is now in the forefront of public debate. But what next?”

Sir Tony Atkinson

Thus begins an essay in The British Journal of Sociology by the dean of inequality studies, A. B. Atkinson of Oxford University. This is a must read for anyone interested in public policy addressed to the growing inequality in the rich countries.

Professor Atkinson’s focus is on the United Kingdom, but his far-reaching set of policy prescriptions address many aspects of public policy (not just tax and transfer policy), and have relevance well beyond the European context.

Tony Atkinson is an economist of the highest order who has been studying and contributing to the economics of inequality since the 1960s. In this paper he offers 12 proposals that, he says, “could bring about a genuine shift in the distribution of income towards less inequality.”

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Do falling tax rates explain the rising incomes of the top 1%?

Top income shares have increased significantly in some rich countries, but not so much in others. In the United States the fraction of income going to the top 1% has more than doubled since the late 1970s. And while top shares have increased in other countries like Canada and the United Kingdom, they have not gone up all that much elsewhere, say in Germany or Sweden.

Globalization and technological change are often said to be the causes of growing inequality, but all rich countries have been confronted by these forces, and on their own they cannot account for the variation in top income shares between countries. A full explanation has to rely on institutions, policies, or norms of pay that differ across national boundaries.

The first and most obvious place to look is at changes in tax rates.

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Tax policy for equality and social mobility

The Canadian House of Commons has charged its subcommittee on Finance to examine income inequality in Canada.

More specifically the Committee’s mandate is to produce a report that will:

  • review Canada’s federal and provincial systems of personal income taxation and income supports;
  • examine best practices that reduce income inequality and improve per capita gross domestic product;
  • identify any significant gaps in the federal system of taxation and income support that contribute to income inequality;
  • identify any significant disincentives to paid work in the formal economy that may exist as part of a “welfare trap;” and
  • provide recommendations on how best to improve equality of opportunity and prosperity for all Canadians.

Its website contains the written submissions received by the April 5th deadline.

I will appear as a witness in a televised hearing beginning at 8:45 EDT on Thursday April 25th, 2013.  The other witnesses slated to appear at the same meeting are listed here.

You can view it all here as Meeting 116 if you have an interest.

A copy of my written submission is available as a pdf: Corak_Submission_to_Finance_Committee.

Why the rich don’t want to talk about inequality, and why the 99% do

Everything you need to know about why the rich don’t want to talk about inequality, and why the 99% do, is right here in this chart.

Average incomes and tax rates relative to 1982

The average income of those in the top 1% in Canada has about doubled since 1982, and for the top 0.1% it has increased by about two and a half to three-fold. But over this period the fraction of their income paid in taxes, their average tax rate, has remained about the same, and even a little lower.

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Inequality and top income shares in Canada: Recent trends and policy implications

Inequality has increased in the majority of rich countries, but the share of income and earnings going to the top has increased most in the anglophone countries.  McMaster University economist Mike Veall says Canada has not escaped this trend, and argues that a public policy response is needed.

The underlying causes of, in his words, “the surge” in the shares of the top 1%, one-tenth of 1% and even the top one-hundredth of 1% in Canada remain elusive. Even so these changes should motivate at least three policy responses that could be supported across the political spectrum.

Professor Veall was the 2012 president of the Canadian Economics Association, the professional association of economists based in Canada, and presented his presidential address at the annual meetings of the Association held last June at the University of Calgary.

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Understanding inequality and what to do about it

Inequality has been increasing in most countries, in part because top 1% are capturing a higher fraction of all earnings but also for other reasons. I made a presentation to the Occupied Ottawa conference “Take Back Democracy!” on June 2nd, 2012. The presentation explores three issues in search of intelligent conversation, and in order to accomplish something constructive: description, explanation, and prescription.

You can download it as a pdf here: Understanding inequality and what to do about it .

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