Tony Atkinson on Inequality - LSE Lecture Notes

HISTORY

Richard Titmuss developed British welfare state during 1940s.

Strongly egalitarian distribution of income postwar. (1950s)

Income Inequality from 1961-2011 has been a game of 3 halves

(1) 1961-1979 (Pre Thatcher, under Labour control [Harold Wilson]) - only non war period with a sustained reduction in economic equality.

(2) 1979-later 1980s (Thatcher) - overall inequality, poverty, top income share all rose. This shows truth in the common notion that the Tory party favours the rich.

(3) Late 1980s-Present (Major, Brown, Blair) slight fall in overall inequality and poverty under Labour government, although rise in top income share.

DATA and INFORMATION

US politicians are arguing that ‘home composition’ is changing i.e. more students and teenagers are working from home or are living with siblings.

In the 1980s, as individual earnings rocketed, the income gap between the rich and the poor widened, i.e. there was a positive underlying trend shown in both individual earnings and the income gap throughout the 1980s. Through progressive income tax policies, governments can work against a widening income gap.

Inherited wealth over time has become less important. In the 1900s, inherited wealth was 20% of national income. In the 1950s, inheritance fell to 2.5% of national income. However, inheritance is on it’s way back with the % rising from 6% in 1995 to 10% in 2006.

Over time, inherited wealth has a much smaller effect on national income. In France: in 1906, inherited wealth was 25% of national income, and remained at levels of 15+% for around 20 years. Post WW2 - inheritance was a meagre 2% of national income.

Personal wealth is becoming more important as a percentage of national income (due to increased value of individual’s assets, I would suggest)

Assets such as houses increased dramatically between 1975 and 2006, resulting in an increase in personal wealth from 4% in 1975 to 8% in 2006.

CONCLUSIONS

To fight income inequality, Atkinson suggests a return to a genuine (Churchillian [Winston’s grandfather]) inheritance tax as well as a focus on progressive taxation.

Furthermore, the maintenance of official income distribution series (notably the ROI series) is important.

Finally, there should be a focus on the ethics of paying taxes. Too much government revenue is lost under tax avoidance, legal or illegal. Atkinson feels governments could do more to promote the moral importance of paying taxes.

Responses to questions:

• Effects of income inequality: crime, inequality of opportunity.

• Even within the EU, there is significant variance in income inequality - eg introduction of very low paying jobs in Germany has led to greater gap between rich and poor.

Notes by Leo Barnes and Thomas Whitmey.