27 October 2013

Shock!! The Rich Get that Way by Rent-Seeking Rather than Making Exceptional Contributions to Overall Economic Well-Being

"Again, the data that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark. 


What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top . . .  rather than increased productive effort."
The upshot of this, economists and is that once avoidance strategies are contained, a remarkable rise in tax rates for the rich is plausible fiscal policy. This would be good not only for addressing worries about deficits but, as Saez and Piketty suggest glancingly at the very end, for democratic politics.

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