Tuesday, June 4, 2013

What Makes The 1%

From last week’s round of NBER papers (abstract):

The Top 1 Percent in International and Historical Perspective
Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, Emmanuel Saez

The top 1 percent income share has more than doubled in the United States over the last thirty years, drawing much public attention in recent years. While other English speaking countries have also experienced sharp increases in the top 1 percent income share, many high-income countries such as Japan, France, or Germany have seen much less increase in top income shares. Hence, the explanation cannot rely solely on forces common to advanced countries, such as the impact of new technologies and globalization on the supply and demand for skills. Moreover, the explanations have to accommodate the falls in top income shares earlier in the twentieth century experienced in virtually all high-income countries. We highlight four main factors. The first is the impact of tax policy, which has varied over time and differs across countries. Top tax rates have moved in the opposite direction from top income shares. The effects of top rate cuts can operate in conjunction with other mechanisms. The second factor is indeed a richer view of the labor market, where we contrast the standard supply-side model with one where pay is determined by bargaining and the reactions to top rate cuts may lead simply to a redistribution of surplus. Indeed, top rate cuts may lead managerial energies to be diverted to increasing their remuneration at the expense of enterprise growth and employment. The third factor is capital income. Overall, private wealth (relative to income) has followed a U-shaped path over time, particularly in Europe, where inherited wealth is, in Europe if not in the United States, making a return. The fourth, little investigated, element is the correlation between earned income and capital income, which has substantially increased in recent decades in the United States.

For me, this paper just confirms some of the stylised facts about income inequality – marginal tax rates are an important tool against income inequality; lower tax rates lead to a higher incentive to supress wage incomes (costs) in corporations; inherited wealth makes a mockery of “equal opportunity”; and the ability to invest in riskier but better returning assets increases wealth disparity.

I hardly need to add more to that.

Technical Notes:

Alvaredo, Facundo and Anthony B. Atkinson, Thomas Piketty & Emmanuel Saez, "The Top 1 Percent in International and Historical Perspective", NBER Working Paper No. 19075, May 2013

2 comments:

  1. This wii supplement the above and makes for a double depressing reading:

    http://truth-out.org/buzzflash/commentary/item/18006-widening-economic-inequality-in-united-states-is-a-deliberate-result-of-government-policy-new-study-finds

    Time for a wealth tax, anyone?

    Warrior 231

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  2. Forbes Criminal ListJune 12, 2013 at 3:21 PM

    The economic inequality can only be reduced with awareness by every citizens what the greedy are trying to do. Steal from the country coffers. Benefit from inside information when privatisation policy is made etc.

    The listing of the Criminal Billionaire Lists by Forbes greatly helped in exposing the weakness of the ruling Government and the self interests of the those in decisions making positions.

    Since Malaysia is a new country, then everyone basically started from the same baseline. The chinese are worse as they came in as coolies and as Goh Tong biography will tell you with only the shirt and 10 ringgit on his tongkang.

    Yet how did he became the richest man? By bribery and cruelty and destroying the genting environment. By gambling evil etc..

    So now it is up to us to ensure evil leaders like Mahathir are exposed. Thanks to Forbes criminal list, his son Mirzan is also listed! Imagine, UMNO members and Malays are poor but the PM and UMNO Presidents sons and daughter are billionaires combined!

    If you dont say this is evil and greed, then you need your head examine.

    But who are we to blame? What can we the ordinary citizens do?

    How come a China man living in Macau owns 40 billions and have concessions and licenses awarded to him? Is there nothing that can be done by this daylight robbery?

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