Inequality – What is to be done?

I finished  by Tony Atkinson, and think it’s great. If you’re only going to read one book on the subject, this is more useful than  – although I have Francois Bourguignon’s forthcoming (May)  in my in-pile and have high hopes for that one too, as a companion work.

[amazon_image id=”0674504763″ link=”true” target=”_blank” size=”medium” ]Inequality[/amazon_image]  [amazon_image id=”069116052X” link=”true” target=”_blank” size=”medium” ]The Globalization of Inequality[/amazon_image]

As noted in my previous posts, Atkinson’s  starts out very carefully and clearly with the data, highlighting the fundamental point that although there are some common underlying trends tending to drive greater inequality in market incomes, different countries have had different outcomes in terms of post-tax, post-transfer incomes (and in access to public goods and services too, but this is too hard to measure). Even when it comes to the skill bias of technological change, on which many economists (me included) have placed a lot of emphasis as an explanatory factor, Atkinson argues that this is not a given of the universe. The direction of investment spending and substitution is shaped by the menu of opportunities firms face, and that is not exogenous.

His main focus is how firms make these choices and exercise their market power. What constraints do they face? This depends on the state, and on corporate governance, and on finance. All of these offer paths to influencing income distribution.

The second part of the book offers s series (15) of policy interventions to reverse the increased income inequality – there is a UK focus in the recommendations. I don’t agree with all of them, or at least not without further thought. For instance, he recommends implementing competition policy with explicit distributional considerations. However, I love the fact that there are 15 suggestions – enough of books that pretend there are simple solutions! When it comes to inequality, there’s a generation’s worth of institutional and political change behind the current situation so narrowing the income distribution will take work.

One of Atkinson’s key proposals is a vehicle for assessing and co-ordinating what will be needed is a new Social and Economic Council, with members drawn from the old tripartite of unions, business and government but adding also non-governmental organisations and consumer groups. He includes also property taxation – a proportional tax on regularly uprated property values. Every economist I know in the UK (many) recommends reforming property taxation – I was much struck by John Muellbauer’s FT column today calling for an updated and progressive council tax, with an equity transfer instead of cash payment option. Kate Barker’s excellent  included a look at capital gains tax on the main dwelling.

[amazon_image id=”1907994114″ link=”true” target=”_blank” size=”medium” ]Housing: Where’s the Plan? (Perspectives)[/amazon_image]

There are many other suggestions in the book – capital endowments for all young people; a job guarantee for those out of work for more then 12 months; and more. The length of the list could be depressing (you mean we can’t just tax plutocrats?) but I found it ended up cheering me because there are so many good policy ideas here that perhaps a government could make a start with just a few and take it from there.

Anyway, UK folks, read this book and then for comparison read your favourite party manifesto. Now, onto .

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9 thoughts on “Inequality – What is to be done?

  1. Pingback: Inequality – What is to be done? | Homines Economici

  2. i don’t understand why this is so hard: simplify the tax code and increase the marginal rate
    get rid of the charitable deduction, limited partnerships, oil depletion, diff rates for diff incomes, roth iras (a super loophole) etc

    duh uh ?

    • You’re talking only about tax measures; Atkinson is talking about making markets work better in the first place so there isn’t so much inequality for the tax system to address.

  3. Pingback: Globalized Inequality | The Enlightened Economist

  4. Pingback: Globalized Inequality | Homines Economici

  5. Hi Diane,

    Excellent posts, as always.

    I thought that generally speaking, economists preferred allowing markets to work and then redistributing; whereas this book advocates intervening in markets.

    Of course there is no clear distinction between state intervention and market outcomes as they are so intertwined. The housing market is a prime example of that – a land-use planning system has colossal effects on house prices and the market structure of housebuilding firms, differential tax treatment etc. All (most?) markets are effected by state regulations of some kind.

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