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Atkinson: Can we reduce income inequality in OECD countries? (2015)

Restricted access to the paper here.

The Point: Atkinson tries to "inject a more optimistic note into the debate about inequality.” He argues that high levels of inequality are not inevitable and puts forward ‘old’ and ‘new’ measures that can reduce inequality. Old proposals include - increase progressive income tax, lifetime capital receipts tax, individual based social insurance. New proposals include - minimum inheritance tax, government savings accounts with guaranteed positive real rate of interest, participation minimum income, influence the direction of technological change. These proposals are based on the following list of observations.

  1. Past experience: during the post-war decades we observe redistribution via the welfare state and progressive taxes, a reduced share of capital income and a market decline in the concentration of wealth and equalizing labour market policy. The reversal after the 1980s has been triggered by welfare state cutbacks, declining share of wages, rising earnings dispersion and a decline in the redistribution of wealth. The extent of inequality could be reduced by adopting policies of the immediate post-war decades.

  2. Textbook story: the race between technology and education biased towards high skilled will raise the relative demand for skilled workers, and education increases the supply of skilled workers. If the demand rises faster than the supply the wage premium will increase. If globalization and technological change will continue to shift demand outwards. Atkinson argues that no dynamics are supplied and puts forward a model in which the increase in the wage premium is not every lasting (Atkinson, 2008). The speed of adjustment of supply can be influenced by policy and institutions such as investment in human capital. Atkinson also points towards the role of state beyond usual redistributive policy such as science policy.

  3. Other determinants: A return to an individual-based social insurance system would contribute to reducing the number of jobless households. There is an important inter-connection between the labour market and the capital market. The elasticity of substitution between labour and capital. The shift within capital from factor of production to replacement of labour (Summers, 2013). Inequality in the rate of return to capital.

The Quote(s):

“It is therefore wrong, even when attention is restricted to Anglo-Saxon countries, to talk of a common pattern of rising inequality, and the differences suggest that the outcome reflects national specificities or policy choices.”

“Policies to reduce the extent of inequality have to look beyond human capital formation and involve other departments of government.”

“As it says on the Internal Revenue Service building in Washington D.C. “taxes are what we pay for a civilized society”. If collecting taxes ceases to be a legitimate function, then the future is indeed bleak.”

Citation: Atkinson, Anthony B. "Income inequality in OECD countries: Data and explanations." CESifo Economic Studies 49, no. 4 (2003): 479-513.

DOI: 10.1007/s10663-015-9288-0

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