Table Of Content

Combating Inequality Rethinking Government’s Role Edited by Olivier Blanchard and Dani Rodrik The MIT Press Cambridge, Massachusetts London, England © 2021 Massachusetts Institute of Technology and Peterson Institute for International Economics All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher. Library of Congress Cataloging-in-Publication Data is available. Names: Blanchard, Olivier (Olivier J.), editor. | Rodrik, Dani, editor. Title: Combating inequality : rethinking government’s role / edited Olivier Blanchard and Dani Rodrik. Description: Cambridge, Massachusetts : The MIT Press, [2021] | Includes bibliographical references and index. Identifiers: LCCN 2020008513 | ISBN 9780262045612 (hardcover) Subjects: LCSH: Income distribution—Government policy. | Equality—Economic aspects. | Equality—Government policy. Classification: LCC HB523 .C644 2021 | DDC 339.2/2—dc23 LC record available at https://lccn.loc.gov/2020008513 A catalogue record of the book is available from the British Library. d_r0 Dedicated to Alan Krueger Contents Introduction: We Have the Tools to Reverse the Rise in Inequality Olivier Blanchard and Dani Rodrik I The Landscape 1 Ten Facts about Inequality in Advanced Economies Lucas Chancel 2 Discussion of the Landscape Peter Diamond II Ethical and Philosophical Dimensions 3 Time for New Philosophical Foundations for Economic Theory? Danielle Allen 4 What Kinds of Inequality Should Economists Address? Philippe Van Parijs 5 Why Does Inequality Matter? T. M. Scanlon III Political Dimensions 6 Wealth Inequality and Politics Ben Ansell 7 The Political Conditions Necessary for Addressing Inequality Sheri Berman 8 The Political Obstacles to Tackling Economic Inequality in the United States Nolan McCarty IV The Distribution of Human Capital 9 A Modern Safety Net Jesse Rothstein, Lawrence F. Katz, and Michael Stynes 10 Education’s Untapped Potential Tharman Shanmugaratnam V Policies toward Trade, Outsourcing, and Foreign Investment 11 Why Was the “China Shock” So Shocking—and What Does This Mean for Policy? David Autor 12 Trade, Labor Markets, and the China Shock: What Can Be Learned from the German Experience? Christian Dustmann 13 Combating Inequality: Rethinking Policies to Reduce Inequality in Advanced Economies Caroline Freund VI The (Re)distribution of Financial Capital 14 How to Increase Taxes on the Rich (If You Must) N. Gregory Mankiw 15 Would a Wealth Tax Help Combat Inequality? Lawrence H. Summers 16 Should We Tax Wealth? Emmanuel Saez VII Policies That Affect the Rate and Direction of Technological Change 17 Could We and Should We Reverse (Excessive) Automation? Daron Acemoglu 18 Innovation and Inequality Philippe Aghion 19 Technological Change, Income Inequality, and Good Jobs Laura D’Andrea Tyson VIII Labor Market Policies, Institutions, and Social Norms 20 Gender Inequality Marianne Bertrand 21 Ownership Cures for Inequality Richard B. Freeman IX Labor Market Tools 22 Guaranteeing Employment for All William Darity Jr. 23 Making Work Work David T. Ellwood 24 The Importance of Enforcement in Designing Effective Labor Market Tools Heidi Shierholz X Social Safety Net 25 Enhancing Micro and Macro Resilience by Building on the Improvements in the Social Safety Net Jason Furman 26 The Social Safety Net for Families with Children: What Is Working and How to Do More Hilary Hoynes XI Progressive Taxation 27 Reflections on Taxation in Support of Redistributive Policies Wojciech Kopczuk 28 Why Do We Not Support More Redistribution? New Explanations from Economics Research Stefanie Stantcheva 29 Can a Wealth Tax Work? Gabriel Zucman Contributors Index List of Figures Figure 1.1 Income inequality rises at different speeds after a historical decline. Western Europe is the average of France, the United Kingdom, Germany, and Sweden. Distribution of pretax national income per adult. Source: Author based on WID.world (2019). See www.wid.world/methodology for data series and notes. Figure 1.2 Inequality in the United States and the European Union, 1980–2017: the Great Divide. Source: Blanchet, Chancel, and Gethin (2019), combing surveys, tax data, and national accounts for Europe. US series are based on Piketty, Saez, and Zucman (2018). See Blanchet, Chancel, and Gethin (2019) for data series and notes. Figure 1.3 The rise of private wealth and the fall of public wealth in rich countries, 1970–2015. Source: Alvaredo, Chancel, Piketty, Saez and Zucman (2018). See wir2018.wid.world for data series and notes. Figure 1.4 Top 1% personal wealth share in rich countries, 1910–2014. Source: Author, based on data from WID.world (2019). See www.wid.world/methodology for data series and notes. Figure 1.5 Global income inequality between countries versus within country, 1980–2018. Distribution of pretax income per adult measured at purchasing power parity. Source: Author, based on WID.world (2019) and own updates. See wir2018.wid.world/methodology for sources and notes. Figure 1.6 Absolute mobility in the United States, 1970–2014. Child income is measured at age 30, while parent income is measured as the sum of the spouses’ incomes for families in which the highest earner is between ages 25 and 35. Source: Chetty et al. (2017, figure 1B). Figure 1.7 Share of women by fractiles of labor income for top groups in France, 1970–2012. Source: Garbinti, Goupille, and Piketty (2018). See www.wid.world/methodology for data series and notes. Figure 1.8 Pretax income growth of the bottom 50% in the United States and Western Europe, 1980–2017. Distribution of pretax income per adult. Source: Blanchet, Chancel, and Gethin (2019). See www.wid.world/methodology for data series and notes. Figure 1.9 College attendance rate and parent income rank in the United States for children born in 1980–1982. Source: Chetty et al. (2014). See www.equality-of-opportunity .org/ for data series and notes. Figure 1.10 Top income tax rates in rich countries, 1900–2017. Source: Alvaredo, Chancel, Piketty, Saez, and Zucman (2018). See wir2018.wid.world for data series and notes. Figure 3.1 A virtuous circle: political equality as the basis of justice. Figure 6.1 House prices in 2015 and support for Remain (remaining in the European Union) in the 2016 EU referendum. Figure 6.2 Changes in house prices and support for the Danish People’s Party. Figure 8.1 Political polarization and economic inequality. The figure plots the measure of polarization in the US House of Representatives from McCarty, Poole, and Rosenthal (2016) against the Gini index of family income and the Piketty and Saez (2003, updated) measure of the income share of the top 1% of taxpayers. The Gini index is a measure of inequality that ranges from 0 (pure equality) to 1 (complete concentration of income). Figure 8.2 Concentration of federal campaign contributions. Contribution data updated from Bonica et al. (2013). The solid line tracks the share of campaign contributions in all federal elections donated by the top 0.01% of the voting-age population. The dashed line tracks the share of contributions from the top 400 donors. Figure 11.1 Commuting zone level bin scatters of decadal change in manufacturing employment to population rate among workers without college versus China shock exposure during 1990–2007. This figure plots the estimated decadal change in the fraction of non-college-educated adult CZ residents ages 16 to 64 who are employed in manufacturing against the predicted change in import exposure per worker between 1990 and 2007. Each point in the bin scatter represents one- thirtieth of non-college-educated adults at the start of the decade. Regression line is fit to 722 CZ level observations weighted by the number of adult CZ residents at the start of the decade. Figure 13.1 Manufacturing share of employment, 1990–2017. Source: Haver Analytics (2019). Figure 13.2 Coefficient of variation of regional disposable income, 1995 and 2014. Source: OECD (2016a). Figure 13.3 Average tariffs. Simple average, applied rate, 1990–2017. Source: World Bank, World Development Indicators (2019a). Figure 13.4 Current account balance, percent of GDP, 1990–2018. Source: World Bank, World Development Indicators (2019a). Figure 13.5 Average scores of 15-year-old students on the PISA mathematics literacy scale, by education system, scores range from 0 to 1000, 2000–2015. Source: OECD (2016b). Figure 13.6 Labor-adjustment policies, percent of GDP. Sources: OECD (2016b) and Bown and Freund (2019). Figure 16.1 The top 0.1% wealth share, 1913–2016. The figure depicts various estimates of the share of wealth held by the top 0.1% of family tax units in the United States: (1) survey data combining the Survey of Consumer Finances (SCF) and the Forbes 400 list of wealthiest Americans; (2) the capitalization method; (3) the capitalization method with adjustments for capitalizing interest income and valuing pass-through businesses; (4) the estate multiplier method adjusted for accurate mortality differentials by wealth. Source: Saez and Zucman (2019a), figure 2(a).