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Symposium 2014

Dealing with Rising Inequalities

The Challenge

Inequality is rising in most parts of the world, irrespective of whether one looks at it in terms of annual income, in terms of wealth (i.e. of accumulated capital and other assets) or in terms of opportunity. In most high-income countries, the share of national income earned by households at the top of the income distribution has soared since the past decades (from the 1980s onward). As the World Top Incomes Database shows, the income share of the richest households continued to climb during and after the crisis of the past few years. In 2012, the income of the top 1% of households accounted for 22.5% of total income; the highest figure since 1928. One explanation is that globalization expands the market for a small group of people with sought-after talent, but competes away the income of ordinary employees. In turn, the competition among countries for skilled individuals constrains the ability of governments to maintain high tax rates on the wealthy.

There are no “obvious” solutions to rising inequalities, but it is imperative to act as rising inequality harms long-term economic growth and welfare. What are the different factors that account for stagnation in the middle and riches at the top? Why is income shifting from labour to capital? If the rate of return on capital is higher than the economy’s growth rate, is it inevitable that capital income will tend to rise faster than wages and salaries? Is surging inequality endemic to capitalism? An increase in the rate of GDP growth that would then exceed the rate of return on capital may alleviate the problem, but would it be sufficient and, also, what could prompt this? Could it be a major innovation triggering a surge in productivity, or would it simply prompt automation and increase capital share of income further? Or do we need to raise the cost of capital, e.g. by tighter monetary policy? Would a global tax on wealth combined with higher tax rates on the largest incomes sound realistic?

    Proposals

    Proposal
    Symposium 2014

    Complex solution for a complex challenge: education - employment - taxation

    Rising inequality is a hugely complex phenomenon. Technological revolutions play an important role, but so do also globalization and international tax competition. So, there is no easy fix. ...

    Rising inequality is a hugely complex phenomenon. Technological revolutions play an important role, but so do also globalization and international tax competition. So, there is no easy fix. But there are remedies at hand which can make a difference: Improving educational systems and efficiency of labour markets to drastically reduce the number of (especially young) people with no or just precarious employment. Rising the number of high quality jobs in a knowledge based economy in

    Polity, Academia, Business, Civil Society

    Background Paper

    Background Paper
    Symposium 2014

    Dealing with Rising Inequalities

    Need one care about rising inequality within countries, as long as overall inequality is shrinking?

    Need one care about rising inequality within countries, as long as overall inequality is shrinking?

    Polity, Academia, Business, Civil Society

    Virtual Library

    Virtual Library File
    Symposium 2014

    Income Inequality Is Not Rising Globally. It's Falling.

    Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most i ...

    Income inequality has surged as a political and economic issue, but the numbers don’t show that inequality is rising from a global perspective. Yes, the problem has become more acute within most individual nations, yet income inequality for the world as a whole has been falling for most of the last 20 years. It’s a fact that hasn’t been noted often enough.

    Virtual Library File
    Symposium 2014

    Pro-growth, pro-poor: Is there a Trade off?

    Is a pro-growth strategy always the best pro-poor strategy? To address this issue, this paper provides an empirical evaluation of the impact of a series of pro-growth policies on inequality and head ...

    Is a pro-growth strategy always the best pro-poor strategy? To address this issue, this paper provides an empirical evaluation of the impact of a series of pro-growth policies on inequality and headcount poverty. We rely on a large macroeconomic data set and estimate dynamic panel models that allow us to differentiate between the short- and longrun impacts of the policies under consideration on growth, inequality and poverty. Our findings indicate that regardless of their impact on inequality, all the pro-growth policies we consider lead to lower poverty levels in the long run. However, we also find evidence indicating that some of these policies may lead to higher inequality and, under plausible assumptions for the distribution of income, to higher poverty levels in the short run. These findings would justify the adoption of a pro-growth policy package as the center of any poverty reduction strategy together with pro-poor measures that complement such a package by offsetting potential short-run increases in poverty.

    Virtual Library File
    Symposium 2014

    Redistribution, Inequality and Growth.

    Economists are increasingly focusing on the links between rising inequality and the fragility of growth. Narratives include the relationship between inequality, leverage and the financial cycle, whi ...

    Economists are increasingly focusing on the links between rising inequality and the fragility of growth. Narratives include the relationship between inequality, leverage and the financial cycle, which sowed the seeds for crisis; and the role of political-economy factors (especially the influence of the rich) in allowing financial excess to balloon ahead of the crisis. While considerable controversy surrounds these issues, we should not jump to the conclusion that the treatment for inequality may be worse for growth than the disease itself. Equality-enhancing interventions could actually help growth. While we should be cognizant of the inherent limitations of the data set and of cross-country regression analysis more generally, we should be careful not to assume that there is a big trade-off between redistribution and growth. The best available macroeconomic data do not support that conclusion.

    Virtual Library File
    Symposium 2014

    Capital is back! Rising wealth-to-income ratios, inequality, and growth

    According to many measures, inequality has been increasing in the developed world and is now approaching prewar levels. Income inequality does not tell the whole story. This column documents the inc ...

    According to many measures, inequality has been increasing in the developed world and is now approaching prewar levels. Income inequality does not tell the whole story. This column documents the increase in the ratio of private wealth to national income. This macroeconomic change, precipitated by slowing GDP growth, exacerbates the problem of wealth inequality and makes the economy more susceptible to bubbles.

    Virtual Library File
    Symposium 2014

    Inequality Is Not Inevitable.

    An insidious trend has developed over this past third of a century. A country that experienced shared growth after World War II began to tear apart, so much so that when the Great Recession hit in l ...

    An insidious trend has developed over this past third of a century. A country that experienced shared growth after World War II began to tear apart, so much so that when the Great Recession hit in late 2007, one could no longer ignore the fissures that had come to define the American economic landscape. How did this “shining city on a hill” become the advanced country with the greatest level of inequality?

    Virtual Library File
    Symposium 2014

    Is Justin Timberlake a Product of Cumulative Advantage?

    As anyone who follows the business of culture is aware, the profits of cultural industries depend disproportionately on the occasional outsize success — a blockbuster movie, a best-selling book or ...

    As anyone who follows the business of culture is aware, the profits of cultural industries depend disproportionately on the occasional outsize success — a blockbuster movie, a best-selling book or a superstar artist — to offset the many investments that fail dismally. What may be less clear to casual observers is why professional editors, studio executives and talent managers, many of whom have a lifetime of experience in their businesses, are so bad at predicting which of their many potential projects will make it big.