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FRIHUMSAM-Fri prosj.st. hum og sam

Inequality: Measurement, Evolution, Mechanisms, and Policies

Alternative title: Ulikhet: Måling, utvikling, mekanismer og politikk

Awarded: NOK 10.0 mill.

Project Manager:

Project Number:

261985

Application Type:

Project Period:

2017 - 2022

Economic inequality is a central theme both in economics and in politics in Norway. Several studies in this project describe the development in inequality in Norway in the period 2001–2018. We study inequality in income and wealth, the distribution of the tax burden, and the degree of progressivity in the tax system. In addition, the final chapter compares measures of the distribution of the tax burden and the progressivity of the tax system in Norway with corresponding measures for the U.S. The effect of more complete measurement of owner income on measurement of income inequality. Several studies of this project complement official statistics on income, wealth, and personal taxes by comparing the measures for income, wealth, and taxes used in official statistics with more complete measures for income and wealth. The measurement of income includes the following three income components that are omitted from the income measures used in official statistics: (i) personal owners’ share of retained earnings in private companies; (ii) the value of housing services for homeowner households; and (iii) capital gains on real estate and financial assets (excluding shares in private companies). In addition, we examine the distributional effects of the value of local public services by studying inequality in the distribution of an extended measure of income which includes the value of municipal services. The measurement of wealth includes a measure of real estate wealth which is based on actual market values (observed in transaction data) instead of estimated values from the personal tax returns. An interesting question is how much inequality would have been reduced if all corporate profits had been taxed at the same rate as dividends, regardless of how much was taken out as dividends. We disregard possible changes in behaviour as a result of the hypothetical tax change. This hypothetical tax does not change the main picture: Inequality in income after the hypothetical tax has also increased significantly, and this increase is driven by the large increase in inequality for the distribution of market income. The studies of this project also contain results for the distribution of the tax burden and the degree of progressivity in the tax and duty system. In one analysis, we also provide a description of the distributional effect of both actual and hypothetical tax. In both cases we find that the system is regressive at the top of the income distribution; i.e. that the tax and duty percentage among the top 1 percent falls with increased income. Distributional effects of public service production in Norway and the EU countries. When income after tax is used as a measure of material well-being, one ignores how public services can contribute to redistribution and, moreover, that the taxes paid by the households are used to finance the public welfare services. Thus, in standard income distribution studies one get an asymmetric treatment of how the public sector contributes to the redistribution of resources since the citizens' contribution to finance the public services is deducted from the income, while free or heavily subsidised in-kind transfers received by the households are ignored. The results from two studies show that the Nordic countries all have relatively low inequality in the distribution of extended income (income after tax + the value of public services) compared to other European countries. The Mediterranean countries Portugal, Spain, Italy and Greece, as well as Great Britain, Estonia and Poland, on the other hand, show a high degree of income inequality. When we compare the distribution of income after tax with the distribution of extended income, we find that inequality falls in all 23 countries. The same happens with the poverty rate. It is in the countries with the lowest poverty rate that we find the largest percentage reduction in poverty when we include public service provision in the analysis. Here, poverty is almost halved, while the proportion of poor people is reduced by more than a third in the countries with the highest poverty rates.

Økonomisk ulikhet er et sentralt tema både i økonomifaget og i politikken i Norge. Men fagøkonomer og politikere har forskjellige roller. Den viktigste oppgaven til fagøkonomene er å gi en best mulig beskrivelse av den økonomiske ulikheten på grunnlag av relevante tilgjengelige data. Politikerne har som oppgave å foreta avveininger mellom motstridende hensyn som ofte impliserer krevende normative vurderinger. Økonomifaget har utviklet begrepsapparat og metoder for å belyse hvordan politikk påvirker fordelingen av inntekt og formue. Men spørsmål knyttet til hvor mye, og hva slags, økonomisk ulikhet som er akseptabel i et samfunn er dypest sett et normativt spørsmål, som økonomifaget ikke kan gi noe bastant svar på. Økonomisk politikk påvirker dessuten ikke bare graden av økonomisk ulikhet, men også hvilken type ulikhet vi får: Produktiv ulikhet som følge av økonomiske insentiver, eller uproduktiv ulikhet basert på for eksempel markedsmakt. Flere av studiene i dette prosjektet supplerer den offisielle inntekts-, formues- og skattestatistikken med ny informasjon om inntekts- og formuesfordelingen ved å sammenlikne målene for inntekt, formue og skatt som benyttes i offisiell statistikk med mer fullstendige mål for inntekt og formue. I målingen av inntekt inkluderes følgende tre inntektskomponenter som er utelatt fra inntektsmålene som benyttes i offisiell statistikk: (i) personlige eieres andel av tilbakeholdte overskudd i private selskaper; (ii) verdien av boligtjenester for boligeierhushold; og (iii) kapitalgevinster på bolig og annen fast eiendom og verdipapirer (unntatt aksjer). I tillegg belyser vi fordelingseffekten av verdien av kommunale tjenester ved å studere ulikhet i fordelingen av et utvidet inntektsmål som inkluderer verdien av kommunale tjenester. I målingen av formue benyttes et mål for boligformue som er basert på faktiske eller anslåtte markedsverdier i stedet for beregnede verdier fra skattemeldingen. Studiene inneholder også resultater for fordelingen av skattebyrden og graden av progressivitet i skatte- og avgiftssystemet. Også i denne analysen gir vi en beskrivelse av både faktisk og hypotetisk skatt. I begge tilfellene finner vi at systemet er regressivt i toppen av inntektsfordelingen; dvs. at skatte- og avgiftsprosenten blant topp 1-prosenten faller med økt inntekt. Hvorvidt fallende skatteprosent blant topp 1-prosenten er ønskelig eller ei sier studiene våre ingenting om. Studiene vurderer heller ikke hvordan alternative utforminger av skatte- og stønadssystemet vil påvirke insentiver til sparing, investering og allokering av kapital. Men dette er interessante spørsmål som det vil være viktig å få grundig belyst i empirisk økonomisk forskning i framtiden. Resultatene fra studiene har fått mye oppmerksomhet både blant politikere og i media, og har bidratt til en omfattende debatt om utformingen av det norske skatte- og avgiftssystemet. Se også rapportering under Resultatinformasjon.

The aim of this project is to advance our understanding of economic inequality. Current analyses face major limitations. First, current measures of inequality are unable to account for fundamental aspects of inequality, such as holding individuals accountable for their choices and compensating them for their different needs. Second, debated empirical projects have mostly focused on the time trend of top-income inequality, paying less attention to the entire income distribution and cross-country variation. Third, the behavioral mechanisms behind the persistence and evolution of economic inequality are only vaguely understood. These limitations hinder economists' and politicians' capacity to produce useful policy recommendations. Our project addresses these limitations. First, it contributes to welfare economics and moral philosophy by developing fairness-sensitive measures of economic inequality, in light of the most recent advances in distributive justice. Second, it employs detailed databases (Norwegian register data, EU-SILC, and US Census) to reevaluate the state and trends of income inequality in Norway, the EU countries, and the US. Third, it investigates specific policy recommendations, such as the introduction of a universal basic income. Importantly, for the correct evaluation of redistributive policies, the project will also expend considerable effort in analyzing the causal mechanisms behind the persistence and evolution of income inequality. As part of the project, we will strive to communicate and disseminate our results both inside and outside of the academic community, hoping to raise a larger interest and to feed politicians and public debates with transparent information about economic inequality.

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Funding scheme:

FRIHUMSAM-Fri prosj.st. hum og sam