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More Equality or More Growth?

6/10/2017

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The Economist writes,
Up to a point, spreading the wealth around carries no growth penalty: growth in income per person is not meaningfully lower in countries with more redistribution. But economies that redistribute a lot may enjoy shorter growth spells, the authors reckon. When the gap between the market and net Ginis is 13 points or more (as in much of western Europe) further redistribution shrinks the typical expansion. The authors caution against drawing hasty conclusions. Details surely matter; nationalising firms and doling out profits would presumably be worse for growth than taxing property to fund education.

​Inequality is more closely correlated with low growth. A high Gini for net income, after redistribution, corresponds to slower growth in income per person. A rise of 5 Gini points (moving from the level in America to that in Gabon, for instance) knocks half a percentage point off average annual growth. And holding redistribution constant, a one-point rise in the Gini raises the risk an expansion ends in a given year by six percentage points. Redistribution that reduces inequality might therefore boost growth.
Basically, a high level of inequality or an extreme level of redistribution can both lead to slower growth within countries.
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Adjusting Capital Income for Inequality

5/25/2017

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Inequality as measured by Gini coefficients has been rising. One contribution to this is that the wealthy receive a disproportionate amount of income from capital, as opposed to labor. The above diagrams show how labor income inequality has indeed risen over the past five decades in both the US and the UK, however, capital income has essentially always been very concentrated. Branko Milanovic offers a few solutions to this,
Deconcentrating capital ownership can be done in at least three ways:

  • By giving tax preferences to small investors so that they become more likely to own shares. One could envisage a government-funded insurance whereby shares up to a certain amount would have a guaranteed, very modest, real return (say, 1% per year) even in a case of a stock market decline.

  • Workers should be encouraged through the existing mechanisms, like employee stock ownership plans, to become the owners of the companies in which they work. Obviously, when they leave they could choose to sell their shares, but the experience of having had some equity (acquired perhaps at preferential rates) may make them more willing to continue investing. In other words, the working class and small investors should enjoy the same tax and other advantages that today are granted only to the rich.

  • Using capital grants funded out of inheritance taxes, as suggested by Atkinson (2015), would also broaden the ownership base.
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Considered Globally, How Wealthy Are You?

11/28/2016

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If you're American, probably quite wealthy, according a recent Economist article,
​IF YOU had only $2,222 to your name (adding together your bank deposits, financial investments and property holdings, and subtracting your debts) you might not think yourself terribly fortunate. But you would be wealthier than half the world’s population, according to this year’s Global Wealth Report by the Credit Suisse Research Institute. If you had $71,560 or more, you would be in the top tenth. If you were lucky enough to own over $744,400 you could count yourself a member of the global 1% that voters everywhere are rebelling against.
​
Unlike many studies of prosperity and inequality, this one counts household assets rather than income. The data are patchy, particularly at the bottom and top of the scale. But with some assumptions, the institute calculates that the world’s households owned property and net financial assets worth almost $256trn in mid-2016. That is about 3.4 times the world’s annual GDP. If this wealth were divided equally it would come to $52,819 per adult. But in reality the top tenth own 89% of it.
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"Gender Parity Could Add $12 Trillion to Global GDP in 2025"

11/15/2016

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McKinsey Global Institute's Gender Parity Score (1.00 = gender parity)
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Research from a recent McKinsey & Co. post,
Globally, women spend thrice the amount of time as men on unpaid care work—an economic contribution conservatively worth $10 trillion, or 13 percent of global GDP, for which they are not compensated or recognized. Turning to work that is paid and measured, women generate about 37 percent of the world’s GDP, despite being about half of the world’s total population. At current rates of progress in women rising to the C-suite, it will take more than 100 years to bridge the gender gap in the upper reaches of US corporations.

Gender gaps in work are symptoms of deeper gender gaps in society and only serve to exacerbate them. Examples of such disparities abound. About 195 million fewer adult women than men are literate. Around 190 million fewer women than men have a bank account. For every 100 men, there are only 22 women in ministerial and parliamentary positions. An estimated 36 million girls marry between the ages of 15 and 19, stunting their educational and economic potential. About 30 percent of women around the world have been victims of violence from an intimate partner. Research by the McKinsey Global Institute (MGI) in 2015 found that 40 of the 95 countries analyzed have high or extremely high levels of gender inequality on at least half of 15 indicators, both economic and social.

​Narrowing gender gaps in work and in society would give the world economy a significant boost. MGI’s research suggests that, in a scenario in which every country matched the fastest progress toward gender parity made within its region, $12 trillion could be added to global GDP in 2025.

​To achieve the $12 trillion GDP potential identified and to make progress on the Sustainable Development Goals, spending on five priority areas—education, family planning, maternal mortality, digital inclusion, and unpaid care work—needs to rise by $1.5 trillion to $2.0 trillion between now and 2025.
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