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Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - IneqPol (Inequality - Public Policy and Political Economy)

Teaser

Over the past decades, many developed countries have seen considerable increases in income and wealth inequality. Political and economic arguments for and against offsetting this rise in inequality have been put forward. This research program aims at informing this debate by...

Summary

Over the past decades, many developed countries have seen considerable increases in income and wealth inequality. Political and economic arguments for and against offsetting this rise in inequality have been put forward. This research program aims at informing this debate by developing new models that capture these trends and by analyzing their optimal policy implications, both theoretically and quantitatively. The goal is to bring together approaches from public economics, labor economics, macroeconomics, and political economy to explore whether rising inequality necessitates institutional responses and, if so, which ones.

This project will shed light on this question from the following three related angles: (1) The changing nature of labor markets and its implications for inequality and tax policy. This part will focus on technological progress (e.g. the replacement of routine tasks) and shifts in the sectoral composition of the economy (e.g. the rise of finance) and what this means for the taxation of labor incomes, profits, and the desirability of basic income policies.

(2) The inter-generational dynamics of inequality and the design of tax and public spending policies to promote economic mobility. We will develop a normative framework for optimal policies that balance both equality of opportunity principles and efficient parental sorting based onpreference heterogeneity over public spending (e.g. on schools).

(3) Wealth inequality and its implications for the political economy of tax policy. This part will incorporate capital taxation into the analysis and explore how it can help promote political stability, both when equilibrium taxes depend on the distribution of wealth in society and, conversely, when political influence correlates with wealth.

Work performed

In the first reporting period, our research has been focused on the first subproject, dealing with income inequality and labor markets. Accordingly, we have (i) investigated the optimal design of tax policies in view of technological change (“the rise of robots”); and (ii) laid out a framework to incorporate corrective concerns for taxation in view of inefficiencies in financial markets (“the rise of finance”). This has led to three completed working papers: “Optimal Taxation of Robots” by Uwe Thuemmel, a PostDoc researcher hired through the project; “Signaling to Experts” by the PI joint with Pablo Kurlat (University of Southern California); and “Taxation and the Superrich” by the PI joint with Joel Slemrod (University of Michigan).

Final results

By the end of this project, we expect this research to develop new theoretical tools and to implement them empirically, with an emphasis on the implications of the above-mentioned challenges for the design of real-world tax policies.

Website & more info

More info: http://www.uzh.ch/econ/scheuer.