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Approaching Equality

What Can Be Done About Wealth Inequality?

Roger A. McCain

Drawing on some recent research (especially that of Piketty and his associates) and on older ideas (particularly from Sir Arthur Lewis), Roger McCain proposes policies that, together, would aim to reverse the observed tendency towards the concentration of wealth in market economies, thus ‘approach equality.’ The shortcomings and dangers of rising wealth inequality are discussed, both from the point of view of increasing instability and of equalitarian values.
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Chapter 5: Piketty’s narrative and the wealth tax

What Can Be Done About Wealth Inequality?

Roger A. McCain

Extract

Piketty’s model of the increasing inequality of wealth is reviewed with some issues that have arisen from it, including the discussion of the “elasticity of substitution.” The proposal that a tax be placed on net wealth above some minimum, also present in Lewis’ proposals, is discussed, and it is suggested that such a tax be hypothecated to fund and enlarge the Social Endowment Fund. The problem of enforcement is discussed and it is suggested that some reforms of other tax laws could create a situation in which “at some stage some buyer or seller will want to report the transaction to save himself taxes,” thus making a tax system including the wealth tax essentially self-enforcing. Some related issues are discussed, along with Atkinson’s recent (much more far-reaching) proposal of public policies to limit income inequality. A simple three-factor CES model of production and growth is sketched that (1) generates the movements in capital incomes that Piketty’s model suggests, despite the fact that (2) raw labor and an aggregate of human and physical capital are complements. The model is approximately fit to data for the United States in the later twentieth century and used to project the impacts of a wealth tax and a Social Endowment Fund for a highly simplified case.

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