Focus on income mobility:

Focus on income mobility:

Context

The World Inequality Report 2018

Who releases the world inequality report?

World Inequality lab

Aim of the report

• The World Inequality Report aims to become the reference global report on inequality and to attract extensive coverage in the international media. The first report will be published in December 2017

World Inequality Lab

The World Inequality Lab aims to promote research on global inequality dynamics. Its core mission is to maintain and expand the World Wealth and Income Database. It also produces inequality reports and working papers addressing substantive and methodological issues

• In addition to the year-round updates to the database and working papers, the World Inequality Lab publishes a biannual World Inequality Report. The objective is to highlight new findings and research analysis emanating from the database, and to draw implications for the global inequality debate

Observations of the report

• Income inequality in India has increased since economic liberalisation. This, it notes, is in contrast to the earlier decades when inequality dropped under socialist policies
• Middle class control a major share: It is true that the rich and the middle class control a major share of the world’s resources, which consequently is not available to the poor. They enjoy higher incomes from better jobs and investments, which allows them to outbid the poor to purchase various goods
• Income inequality will always exist: Income inequality will always exist in a market economy where people are allowed to engage in free exchange and earn incomes according to their personal capabilities. Doctors, for instance, earn many more times than plumbers and carpenters because they offer rare services
• We should look at income mobility rather than income inequality: The higher incomes of the rich and the middle class do not last forever in a marketplace that is free of legal entry barriers. More people will be attracted towards professions and businesses that offer higher returns, which in turn will drive up the incomes of the new entrants while driving down the returns of incumbents. This is why we must look at income mobility, which reflects the number of people moving up and down the economic ladder, and ways to foster it rather than inequality
• In fact, income inequality might even widen during times when there is a lot of economic mobility
• Enabling mobility: To enable mobility, however, the government needs to look beyond taxes and handouts, and ensure social goods — education and healthcare — for all in order to level the playing field

Why taxing the rich more will not prove helpful?

• What is not true, however, is that the poor will get to enjoy many luxuries if only the rich were taxed more and the money was used to write welfare cheques to the poor, thus boosting their purchasing power. Instead, when taxes are high, people who help produce the goods that the rich and the middle class enjoy today will have less of an incentive to do their jobs as before
• Workers, for instance, may no longer be attracted towards high-skill jobs when their income from such jobs is taxed at high rates. Investors too will have lesser reason to put in their money in crucial projects when their profits are taxed at high rates. In fact, India before economic liberalisation faced this problem when it tried to tax its way to prosperity