Table Of Content
Combating Inequality
Rethinking Government’s Role
Edited by Olivier Blanchard and Dani Rodrik
The MIT Press
Cambridge, Massachusetts
London, England
© 2021 Massachusetts Institute of Technology and Peterson Institute for
International Economics
All rights reserved. No part of this book may be reproduced in any form by any
electronic or mechanical means (including photocopying, recording, or information
storage and retrieval) without permission in writing from the publisher.
Library of Congress Cataloging-in-Publication Data is available.
Names: Blanchard, Olivier (Olivier J.), editor. | Rodrik, Dani, editor.
Title: Combating inequality : rethinking government’s role / edited Olivier Blanchard
and Dani Rodrik.
Description: Cambridge, Massachusetts : The MIT Press, [2021] | Includes
bibliographical references and index.
Identifiers: LCCN 2020008513 | ISBN 9780262045612 (hardcover)
Subjects: LCSH: Income distribution—Government policy. | Equality—Economic
aspects. | Equality—Government policy.
Classification: LCC HB523 .C644 2021 | DDC 339.2/2—dc23
LC record available at https://lccn.loc.gov/2020008513
A catalogue record of the book is available from the British Library.
d_r0
Dedicated to Alan Krueger
Contents
Introduction: We Have the Tools to Reverse the Rise in
Inequality
Olivier Blanchard and Dani Rodrik
I The Landscape
1 Ten Facts about Inequality in Advanced Economies
Lucas Chancel
2 Discussion of the Landscape
Peter Diamond
II Ethical and Philosophical Dimensions
3 Time for New Philosophical Foundations for Economic
Theory?
Danielle Allen
4 What Kinds of Inequality Should Economists Address?
Philippe Van Parijs
5 Why Does Inequality Matter?
T. M. Scanlon
III Political Dimensions
6 Wealth Inequality and Politics
Ben Ansell
7 The Political Conditions Necessary for Addressing
Inequality
Sheri Berman
8 The Political Obstacles to Tackling Economic Inequality in
the United States
Nolan McCarty
IV The Distribution of Human Capital
9 A Modern Safety Net
Jesse Rothstein, Lawrence F. Katz, and Michael Stynes
10 Education’s Untapped Potential
Tharman Shanmugaratnam
V Policies toward Trade, Outsourcing, and Foreign
Investment
11 Why Was the “China Shock” So Shocking—and What Does
This Mean for Policy?
David Autor
12 Trade, Labor Markets, and the China Shock: What Can Be
Learned from the German Experience?
Christian Dustmann
13 Combating Inequality: Rethinking Policies to Reduce
Inequality in Advanced Economies
Caroline Freund
VI The (Re)distribution of Financial Capital
14 How to Increase Taxes on the Rich (If You Must)
N. Gregory Mankiw
15 Would a Wealth Tax Help Combat Inequality?
Lawrence H. Summers
16 Should We Tax Wealth?
Emmanuel Saez
VII Policies That Affect the Rate and Direction of Technological
Change
17 Could We and Should We Reverse (Excessive)
Automation?
Daron Acemoglu
18 Innovation and Inequality
Philippe Aghion
19 Technological Change, Income Inequality, and Good Jobs
Laura D’Andrea Tyson
VIII Labor Market Policies, Institutions, and Social Norms
20 Gender Inequality
Marianne Bertrand
21 Ownership Cures for Inequality
Richard B. Freeman
IX Labor Market Tools
22 Guaranteeing Employment for All
William Darity Jr.
23 Making Work Work
David T. Ellwood
24 The Importance of Enforcement in Designing Effective
Labor Market Tools
Heidi Shierholz
X Social Safety Net
25 Enhancing Micro and Macro Resilience by Building on the
Improvements in the Social Safety Net
Jason Furman
26 The Social Safety Net for Families with Children: What Is
Working and How to Do More
Hilary Hoynes
XI Progressive Taxation
27 Reflections on Taxation in Support of Redistributive
Policies
Wojciech Kopczuk
28 Why Do We Not Support More Redistribution? New
Explanations from Economics Research
Stefanie Stantcheva
29 Can a Wealth Tax Work?
Gabriel Zucman
Contributors
Index
List of Figures
Figure 1.1
Income inequality rises at different speeds after a historical decline. Western
Europe is the average of France, the United Kingdom, Germany, and Sweden.
Distribution of pretax national income per adult. Source: Author based on
WID.world (2019). See www.wid.world/methodology for data series and notes.
Figure 1.2
Inequality in the United States and the European Union, 1980–2017: the Great
Divide. Source: Blanchet, Chancel, and Gethin (2019), combing surveys, tax data,
and national accounts for Europe. US series are based on Piketty, Saez, and
Zucman (2018). See Blanchet, Chancel, and Gethin (2019) for data series and
notes.
Figure 1.3
The rise of private wealth and the fall of public wealth in rich countries, 1970–2015.
Source: Alvaredo, Chancel, Piketty, Saez and Zucman (2018). See
wir2018.wid.world for data series and notes.
Figure 1.4
Top 1% personal wealth share in rich countries, 1910–2014. Source: Author,
based on data from WID.world (2019). See www.wid.world/methodology for data
series and notes.
Figure 1.5
Global income inequality between countries versus within country, 1980–2018.
Distribution of pretax income per adult measured at purchasing power parity.
Source: Author, based on WID.world (2019) and own updates. See
wir2018.wid.world/methodology for sources and notes.
Figure 1.6
Absolute mobility in the United States, 1970–2014. Child income is measured at
age 30, while parent income is measured as the sum of the spouses’ incomes for
families in which the highest earner is between ages 25 and 35. Source: Chetty et
al. (2017, figure 1B).
Figure 1.7
Share of women by fractiles of labor income for top groups in France, 1970–2012.
Source: Garbinti, Goupille, and Piketty (2018). See www.wid.world/methodology
for data series and notes.
Figure 1.8
Pretax income growth of the bottom 50% in the United States and Western
Europe, 1980–2017. Distribution of pretax income per adult. Source: Blanchet,
Chancel, and Gethin (2019). See www.wid.world/methodology for data series and
notes.
Figure 1.9
College attendance rate and parent income rank in the United States for children
born in 1980–1982. Source: Chetty et al. (2014). See www.equality-of-opportunity
.org/ for data series and notes.
Figure 1.10
Top income tax rates in rich countries, 1900–2017. Source: Alvaredo, Chancel,
Piketty, Saez, and Zucman (2018). See wir2018.wid.world for data series and
notes.
Figure 3.1
A virtuous circle: political equality as the basis of justice.
Figure 6.1
House prices in 2015 and support for Remain (remaining in the European Union)
in the 2016 EU referendum.
Figure 6.2
Changes in house prices and support for the Danish People’s Party.
Figure 8.1
Political polarization and economic inequality. The figure plots the measure of
polarization in the US House of Representatives from McCarty, Poole, and
Rosenthal (2016) against the Gini index of family income and the Piketty and Saez
(2003, updated) measure of the income share of the top 1% of taxpayers. The Gini
index is a measure of inequality that ranges from 0 (pure equality) to 1 (complete
concentration of income).
Figure 8.2
Concentration of federal campaign contributions. Contribution data updated from
Bonica et al. (2013). The solid line tracks the share of campaign contributions in all
federal elections donated by the top 0.01% of the voting-age population. The
dashed line tracks the share of contributions from the top 400 donors.
Figure 11.1
Commuting zone level bin scatters of decadal change in manufacturing
employment to population rate among workers without college versus China shock
exposure during 1990–2007. This figure plots the estimated decadal change in the
fraction of non-college-educated adult CZ residents ages 16 to 64 who are
employed in manufacturing against the predicted change in import exposure per
worker between 1990 and 2007. Each point in the bin scatter represents one-
thirtieth of non-college-educated adults at the start of the decade. Regression line
is fit to 722 CZ level observations weighted by the number of adult CZ residents at
the start of the decade.
Figure 13.1
Manufacturing share of employment, 1990–2017. Source: Haver Analytics (2019).
Figure 13.2
Coefficient of variation of regional disposable income, 1995 and 2014. Source:
OECD (2016a).
Figure 13.3
Average tariffs. Simple average, applied rate, 1990–2017. Source: World Bank,
World Development Indicators (2019a).
Figure 13.4
Current account balance, percent of GDP, 1990–2018. Source: World Bank, World
Development Indicators (2019a).
Figure 13.5
Average scores of 15-year-old students on the PISA mathematics literacy scale,
by education system, scores range from 0 to 1000, 2000–2015. Source: OECD
(2016b).
Figure 13.6
Labor-adjustment policies, percent of GDP. Sources: OECD (2016b) and Bown
and Freund (2019).
Figure 16.1
The top 0.1% wealth share, 1913–2016. The figure depicts various estimates of
the share of wealth held by the top 0.1% of family tax units in the United States: (1)
survey data combining the Survey of Consumer Finances (SCF) and the Forbes
400 list of wealthiest Americans; (2) the capitalization method; (3) the capitalization
method with adjustments for capitalizing interest income and valuing pass-through
businesses; (4) the estate multiplier method adjusted for accurate mortality
differentials by wealth. Source: Saez and Zucman (2019a), figure 2(a).
