Metamorphosis of Europe European Unification in Trouble Vienna University of Technology and Austrian Chamber of Labour December 9-10, 2015 A Note on Inequality Food for Discussion Wilfried Altzinger „Economics of Inequality“ University of Economics and Business, Vienna

Contents 1.Stylized Facts on Income and Wealth Inequality 2.Reasons of Increasing Income and Wealth Inequality - A very simple framework 3.Policy Perspectives 2

The Distribution of Growth for the US E. Saez (2015); Summary for the broader public "Striking it Richer: The Evolution of Top Incomes in the United States", updated June 2015Summary for the broader public "Striking it Richer: The Evolution of Top Incomes in the United States", updated June

The Distribution of Growth for the US E. Saez (2015); Summary for the broader public "Striking it Richer: The Evolution of Top Incomes in the United States", updated June 2015Summary for the broader public "Striking it Richer: The Evolution of Top Incomes in the United States", updated June

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Total Income = Labour Income & Capital Income 7

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Net Wealth Distribution,

PercentilesLabor Income Labor and Capital IncomeCapital Ownership %35%60% 1007%10%25% %25%35% %40%35% %25%5% Gini0,260,360,67 Inequalities in Europe, 2010 Source: Piketty, 2014, 247pp.

James Meade ( ) nobel price winner 1977 “ Extreme inequalities in the ownership of property are in my view undesirable quite apart from any inequalities of income they may imply. A man with much property has great bargaining strength and a great sense of security, independence and freedom; he enjoys these things not only vis-á-vis his propertyless fellow citizens but also vis-á- vis the public authorities.” James E. Meade (1964, 38); Efficiency, Equality and the Ownership of Property. 11

The „old“ framework: ‘Give and Take’ bargaining powers strength of dependencies influences of the interrelations Source: Rothschild, Kurt W. (2005) New Worlds–New Approaches: A Note on Future Research Strategies [G]. Kyklos 58(3): pp This situation is now (2005) in a stage of rapid change.

The „new“ framework 13 „the interests of the quickly spreading big and transnational companies, created the explosive mixture of globalization.” ‘voice’ opportunities ‘exit’ strategies Two players are missing: financial sector State-state-relations

Transnational companies (TC) 14 The influence of the increased bargaining power vis-a-vis the other sectors requires far more attention than it normally receives TC are far less dependent on the ‘favors’ of one particular country „Their combined pressure through negotiations, lobbies, think-tanks etc. for ‘slim’ states and world-wide liberalization are just as much part of their strategies as the internal oligopolisitc competition.“

Transnational companies (TC) 15 „The old basis of circular dependence and of a social consensus about the state-business-labor triangle (with all its conflicts) is disappearing.“

Policy Perspectives “Wealth begets power, which begets more wealth.” => Vicious circle “In a broad sense, “rent seeking” defines many of the ways by which our current political process helps the rich at the expense of everyone else, including – transfers and subsidies from the government, – laws that make the marketplace less competitive, – laws that allow C.E.O.’s to take a disproportionate share of corporate revenue, – laws that permit corporations to make profits as they degrade the environment.” How to escape from such a vicious circle? 16

Some policy suggestions All measures which help to minimize tax evasion and tax avoidance (OECD 2014) – full transparency of financial transactions on a world-wide level – abolish banking secrecy (without exception) – minimize ‚treaty shopping‘ (Pfitzer-Allergan) Improve transparency and supervision Support public policy which aims at a proper balance of power among stakeholders (Atkinson 2014) Create sovereign wealth funds (Atkinson 2014, Corneo 2014) – ‚control‘ and ‚ownership‘ dimension can be separated 17

OECD (2014) Abolishing or scaling back a wide range of those tax deductions, credits and exemptions which benefit high income recipients disproportionately; Taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements and stock options; Considering shifting the tax mix towards a greater reliance on recurrent taxes on immovable property; Reviewing other forms of wealth taxes such as inheritance taxes; Examining ways to harmonise capital and labour income taxation; Increasing transparency and international cooperation on tax rules to minimise “treaty shopping” (when high-income individuals and companies structure their finances to take account of favourable tax provisions in different countries) and tax optimisation; Broadening the tax base of the income tax, so as to reduce avoidance opportunities and thereby the elasticity of taxable income; Developing policies to improve transparency and tax compliance, including continued support of the international efforts, led by the OECD, to ensure the automatic exchange of information between tax authorities. 18