Inequality

Activity: Wealth tax quiz

Lecture handout: Inequality*

Key readings:

  • Saez, E., and Zucman, G., 2020, “The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts” Journal of Economic Perspectives, 34(4):3-26
  • Kopczuk, W., and Zwick, E., 2020, “Business Incomes at the Top” Journal of Economics Perspectives, 34(4):27-51,

Many consider inequality to be a key social problem, and yet economics is all about delving beyond intuitions. Do we have good data on what has happened to inequality over time? What type of inequality matters? Is there an important trade-off to consider when confronting inequality? The answers to these questions may be controversial, but they are relevant and important.

I’ve often seen students link to this graph:

On initial inspection this graph looks highly dubious:

  • The selection of countries is suspicious (why exclude countries that have more income inequality than the US, and why include Finland but not Singapore)
  • The “Index of health and social problems” looks arbitrary and prone to manipulation

However I’ve not been able to find the actual source yet. I believe it comes from ‘The Spirit Level‘, which i believe has been quite firmly debunked.

The lecture tried to show the link between economic growth and rising living standards for the general public.

This is also something that Dracula noticed when he encountered a “normal” modern house:

I’ve been a nobleman for 400 years. I’ve lived in castles and palaces among the richest people of any age. Never….never! Have I stood in greater luxury than surrounds me now. This is a chamber of marvels. There isn’t a king, or queen or emperor that I have ever known or eaten who would step into this room and ever agree to leave it again. I knew the future would bring wonders. I did not know it would make them ordinary.

A key point from the lecture is that when assessing inequality it is important to look at consumption (or living standards) as well as income and wealth. In this post Scott Sumner makes the case for why the only sensible way to look at inequality is through consumption.

A universal basic income is a policy programme that provides all citizens with a specified amount of money irrespective of need. This Vox article provides a good summary of different examples of how they work in practice.

In January 2022 a group of high net worth individuals signed a petition to campaign for a wealth tax. Here is an overview and discussion of a wealth tax:

Here is a KPMG report on how Switzerland treats Cryptocurrencies as part of its wealth tax.

Here is the reason I’m concerned about the link between inequality as a public policy issue and central bank digital transformation:

Recommended audio:

  • Claudia Goldin on Inequality“, Conversations with Tyler, Oct 6th 2021 – this conversation focuses on gender inequality and the labour market in particular, and although some of the discussion is aimed at graduate students they pose some excellent questions to reflect on.

Recommended film:

You can see the trailer to Parasite here:

I also recommend the 2021 BBC series Chloe. As this Guardian review demonstrates, some viewers can actively root for despicable behavioural if it’s presented as a commentary on inequality.

Learning Objectives: Survey the latest empirical work on inequality and relate this to wider social issues.

Cutting edge theory: Assessment of a wealth tax

Focus on diversity: Thomas Sowell has written extensively on topics such as race and inequality. In this interview he discusses the myths of economic inequality.

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