Growth, the Rich, and the Really Rich – Part 2

Gerardo Esquivel Hernández is a Professor of Economics at Colegio de Mexico.

While economic growth and the poor — do rising tides raise all boats? — has long been a major concern of economists, few have worried about growth and the rich. Yet there is an increasing concern, especially in industrial countries, about rising inequality within societies. Witness the numerous social movements in recent years, like Occupy Wall Street, which called attention to the fate of the "bottom 99 percent" versus the top 1 percent. A new paper, "Growth is (really) good for the (really) rich" — by Emmanuel Chavez (Economic Analyst, Mexico's Ministry of Finance and Public Credit) and Raymundo M. Campos-Vazguez and Gerardo Esquivel (Professors of Economics, El Colegio de Mexico) — tries to help inform the debate by asking how overall economic growth affects the "rich" (top 10 percent) and the "very rich" (top 1 percent, 0.1 percent, and 0.01 percent). It looks at 26 developed countries and emerging economies from 1980 to 2011, drawing on the World Top Incomes database.

In Part 2 of this series, Esquivel tells the JKP that two key policy implications stand out. First, policy makers might want to adopt a more progressive tax system by varying tax rates among the top 10 percent and taxing different sources of income more equally (capital gains typically fall into a lower tax bracket). However, the challenge here, he stresses, is to avoid increasing taxes so much that they actually introduce large distortions that would impede investment and job creation. Second, if policy makers wish to create a more egalitarian society, then they could use the additional revenues to help those at the bottom part of the income distribution.

This post was first published on the Jobs Knowledge Platform.