Tax, Inequality and Economic Growth
Inequality is a growing worry around the world, and it is now also provoking a queasy feeling on both left and right of the political spectrum in the rich countries. In the rich countries, it has grown especially fast in the United States and Britain (this 2007 IMF report provides some useful data). Globalisation appears, among other things, to have had some good effects (such as increasing the world’s wealth, on aggregate) and bad effects (like increasing inequality -- although technology has probably played an important role here too.) One of TJN’s main concerns is that tax havens and tax competition between countries intensify the bad part and neutralise the tools that can be wielded to tackle it. Redistribution of wealth through taxation is, of course, a powerful tool for tackling this problem, which is not just about wealth and poverty but has important political dimensions.
Robert Reich, a U.S. labour secretary under Bill Clinton, had this to say :
Income inequality, and wealth inequality even more so, are worse in the United States since the 1920s, and by some measures since the 1890s. Most of the economic gains In the past 25 years have gone to the top 15-20 percent of Americans, but more recently, in the past six to seven years, most of the economic gains have gone to the top one percent. . . . the average CEO is making about 380 times more than the average worker – a huge gap relative to what it used to be 40 years ago – it was about 30 times.
The former U.S. Treasury Secretary Larry Summers, another of Bill Clinton's officials, in an interview in October, said this:
If the income distribution in the United States were the same today as it was in 1979, the bottom 80 percent of the population would have about $670 billion more, or about $8,000 per family. And the top one percent would have about $670 billion less, or about $500,000 per family.
One good source of data and research on this subject comes from a thoroughly researched report published in December 2006 by the Canadian Centre for Policy Alternatives (CCPA,) which, while aimed at a Canadian audience, contains a broad range of data. It compares high-tax Nordic countries and low-tax Anglo-American countries on 50 social and economic measures, and finds the high-tax Nordic countries score better in 42 categories.
More data and analysis -- including on the effect of tax havens on inequality in poor countries -- and on relationships between tax levens and economic growth -- will be added on this important subject in due course.
June 2011 - Global wealth shows strong gains, Boston Consulting Group
Oct 2009, why the crisis isn't likely to produce any major reversal of inequality.>
July 2009: The IMF on why tax incentives don't seem to produce economic growth >
April 2009 - remarkable new graphs and data on inequality and social ills >
March 2009 - pointer to a remarkable book: Inequality and the Spirit Level >