Natural Limits of Wealth Inequality and the Effectiveness of Tax Policy

2017 ◽  
Vol 47 (1) ◽  
pp. 32-57
Author(s):  
Scott S. Condie ◽  
Richard W. Evans ◽  
Kerk L. Phillips
Keyword(s):  
General Equilibrium ◽  
Income Tax ◽  
Wealth Inequality ◽  
Wealth Accumulation ◽  
Rates Of Return ◽  
Unbalanced Growth ◽  
Wealth Concentration ◽  
Savings Rate ◽  
Wealth Tax ◽  
Growth Differences

This article examines Thomas Piketty’s thesis that there are no natural limits on the accumulation of wealth. We undertake our examination in the context of a simple general equilibrium model with infinitely lived dynasties. We show that extreme wealth accumulation does not happen in general equilibrium unless capital and labor are substitutes, an assumption which also leads to unbalanced growth. We also show that even with unbalanced growth, differences in rates of return and effective labor are not sufficient to cause unbounded inequality. Only permanent savings rate differences can lead to extreme wealth concentration. Finally, we show that while a flat wealth tax will not eliminate extreme wealth concentration, both a graduated wealth tax and a flat income tax will.

scholarly journals Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data *

2016 ◽  
Vol 131 (2) ◽  
pp. 519-578 ◽  
Author(s):  
Emmanuel Saez ◽  
Gabriel Zucman
Keyword(s):  
United States ◽  
Income Tax ◽  
Wealth Inequality ◽  
The United States ◽  
Balance Sheets ◽  
Distribution Of Wealth ◽  
Consumer Finances ◽  
Wealth Concentration ◽  
Top Incomes ◽  
Tax Returns

Abstract This paper combines income tax returns with macroeconomic household balance sheets to estimate the distribution of wealth in the United States since 1913. We estimate wealth by capitalizing the incomes reported by individual taxpayers, accounting for assets that do not generate taxable income. We successfully test our capitalization method in three micro datasets where we can observe both income and wealth: the Survey of Consumer Finance, linked estate and income tax returns, and foundations’ tax records. We find that wealth concentration was high in the beginning of the twentieth century, fell from 1929 to 1978, and has continuously increased since then. The top 0.1% wealth share has risen from 7% in 1978 to 22% in 2012, a level almost as high as in 1929. Top wealth-holders are younger today than in the 1960s and earn a higher fraction of the economy’s labor income. The bottom 90% wealth share first increased up to the mid-1980s and then steadily declined. The increase in wealth inequality in recent decades is due to the upsurge of top incomes combined with an increase in saving rate inequality. We explain how our findings can be reconciled with Survey of Consumer Finances and estate tax data.

scholarly journals Wealth Inequality and Private Savings

2020 ◽  
Vol 20 (107) ◽  
Author(s):  
Mai Dao
Keyword(s):  
Current Account ◽  
Wealth Inequality ◽  
Current Account Balance ◽  
Corporate Ownership ◽  
Capital Income ◽  
Wealth Concentration ◽  
Savings Rate ◽  
Consumption Rates ◽  
Private Savings ◽  
Corporate Profits

This paper explores the interaction between corporate ownership concentration and private savings, and by extension, the current account balance in Germany. As high corporate savings largely reflected capital income accruing to wealthy households and increasingly retained in closely-held firms, the buildup of external imbalances in Germany has been accompanied by widening top income inequality, rising private savings and compressed consumption rates. Rising corporate profits in an environment of high business wealth concentration account for 90 percent of the rise in the private savings rate and a third of the increase in the German current account surplus over 1999–2016.

scholarly journals Making sense of Piketty's ‘fundamental laws’ in a Post-Keynesian framework: the transitional dynamics of wealth inequality

2020 ◽  
Vol 8 (2) ◽  
pp. 195-219 ◽  
Author(s):  
Stefan Ederer ◽  
Miriam Rehm
Keyword(s):  
Wealth Inequality ◽  
Distribution Of Wealth ◽  
Making Sense ◽  
Wealth Concentration ◽  
Current State ◽  
Keynesian Model ◽  
Income Ratio ◽  
Wealth Tax ◽  
Transitional Phase ◽  
Interior Solutions

If Piketty's main theoretical prediction (r > g leads to rising wealth inequality) is taken to its radical conclusion, then a small elite will own all wealth if capitalism is left to its own devices. We formulate and calibrate a Post-Keynesian model with an endogenous distribution of wealth between workers and capitalists which permits such a corner solution of all wealth held by capitalists. However, it also shows interior solutions with a stable, non-zero wealth share of workers, a stable wealth-to-income ratio, and a stable and positive gap between the profit and the growth rate determined by the Cambridge equation. More importantly, simulations show that the model conforms to Piketty's empirical findings during a transitional phase of increasing wealth inequality, which characterizes the current state of high-income countries: the wealth share of capitalists rises to over 60 per cent, the wealth-to-income ratio increases, and income inequality rises. Finally, we show that the introduction of a wealth tax as suggested by Piketty could neutralize this rise in wealth concentration predicted by our model.

scholarly journals THE IMPOSITION OF TAX ON INHERITANCE IN INDONESIA

Scientax ◽  
2020 ◽  
Vol 2 (1) ◽  
pp. 1-26
Author(s):  
Rieska Wulandari
Keyword(s):  
Economic Growth ◽  
Fiscal Policy ◽  
Income Tax ◽  
Wealth Inequality ◽  
Sustainable Growth ◽  
Wealth Accumulation ◽  
Personal Income Tax ◽  
Taxation Policy ◽  
Inheritance Tax ◽  
Policy Field

Indonesia has enjoyed high and stable economic growth during the last decade. However, the benefits of growth have not been shared equally. Wealth inequality is widening in recent years which gives a serious threat to sustainable growth. The taxation policy still faces challenges to support inequality-reducing programs. The limitation of Personal Income Tax to conduct redistribution role and the absence of capital gain tax in Indonesia are some of the challenges faced in the fiscal policy field. Inheritance is assumed to be one of the sources of wealth accumulation. To reduce the gap between the richest and the rest, it is time for Indonesia to impose an inheritance tax . This paper examines the suitable inheritance tax design for Indonesia taking into consideration of experiences from a few selected countries. Based on the analysis, Indonesia should have an estate tax model with basic exemption starts from IDR 14.5 billion (USD 1 Million).

scholarly journals Education, Income, Wealth Inequality and Business Cycles in a General Equilibrium Growth Model

2020 ◽  
Vol 26 (4) ◽  
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Business Cycles ◽  
General Equilibrium ◽  
Growth Model ◽  
Open Economy ◽  
Wealth Inequality ◽  
Learning By Doing ◽  
Government Subsidy ◽  
Wealth Inequalities

The paper is concerned with the dynamic interactions between physical capital, human capital, income and wealth inequalities between different households with government subsidy to education. It generalizes the endogenous growth model of a small-open economy proposed by Zhang (2016). Zhang’s paper deals with income and wealth inequalities between heterogeneous households with government subsidy to education. The paper makes a contribution to the literature of economic growth with endogenous education by integrating Solow-Uzawa’s neoclassical growth theory, Uzawa-Lucas model, Arrow’s learning by doing, Zhang’s creative leisure, and Walrasian general equilibrium theory. The model treats endogenous capital and human capital accumulation as the main engines of economic growth. This study generalizes Zhang’s model by allowing constant coefficients to be time-dependent. We simulate the generalized model to demonstrate existence of business cycles due to various exogenous periodic shocks.

scholarly journals What Do Survey Data Tell Us about US Businesses?

2020 ◽  
Vol 2 (4) ◽  
pp. 443-458
Author(s):  
Anmol Bhandari ◽  
Serdar Birinci ◽  
Ellen R. McGrattan ◽  
Kurt See
Keyword(s):  
Survey Data ◽  
Measurement Errors ◽  
Wealth Inequality ◽  
Business Owners ◽  
Private Business ◽  
Publicly Traded ◽  
Rates Of Return ◽  
Survey Responses ◽  
Survey Designs

This paper examines the reliability of survey data on business incomes, valuations, and rates of return, which are key inputs for studies of wealth inequality and entrepreneurial choice. We compare survey responses of business owners with available data from administrative tax records, brokered private business sales, and publicly traded company filings and document problems due to nonrepresentative samples and measurement errors across several surveys, subsamples, and years. We find that the discrepancies are economically relevant for the statistics of interest. We investigate reasons for these discrepancies and propose corrections for future survey designs. (JEL C82, C83, D22)

Are The Rich Getting Richer? Trends in U.S. Wealth Concentration

1976 ◽  
Vol 36 (1) ◽  
pp. 147-162 ◽  
Author(s):  
Stanley Lebergott
Keyword(s):  
Nineteenth Century ◽  
Forward Model ◽  
Wealth Accumulation ◽  
Wealth Concentration ◽  
Personal Wealth ◽  
The Rich ◽  
American Families

When tested against U.S. evidence back to the nineteenth century a straight-forward model of wealth accumulation contradicts the belief that “the rich are getting richer.” If the wealth owned by the top 1 percent of American families in 1922 had earned only a modest 8 percent yearly until 1953 then they (or their heirs) would have owned 98 percent of personal wealth—instead of an actual share of 28 percent. The erosion of top wealth groups also appears for 1953–1969, and for 1892 and the years following. The reasons for such erosion, inherent in the structure of U.S. families and of U.S. institutions, are discussed.

scholarly journals Optimal progressivity of personal income tax: a general equilibrium evaluation for Spain

SERIEs ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 407-455 ◽  
Author(s):  
Darío Serrano-Puente
Keyword(s):  
General Equilibrium ◽  
Income Tax ◽  
Optimal Level ◽  
Personal Income ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Negative Effects ◽  
Spanish Economy ◽  
Current Scenario ◽  
The Cost

AbstractIs the Spanish economy positioned at its optimal progressivity level in personal income tax? This article quantifies the aggregate, distributional, and welfare consequences of moving toward such an optimal level. A heterogeneous households general equilibrium model featuring both life cycle and dynastic elements is calibrated to replicate some characteristics of the Spanish economy and used to evaluate potential reforms of the tax system. The findings suggest that increasing progressivity would be optimal, even though it would involve an efficiency loss. The optimal reform of the tax schedule would reduce wealth and income inequality at the cost of negative effects on capital, labor, and output. Finally, these theoretical results are evaluated using tax microdata and describe a current scenario where the income-top households typically face suboptimal effective average tax rates.

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