Week 17

Question 1

Gini Coefficient

Answer 1

Measures income inequality within countries.

Scale:
• 0 = perfectly equal income distribution
• 1 = one person earns all income

Measurement Issues:
• Only measures income (not wealth)
• Relative: doesn’t capture growth in absolute income gaps
• Poor at reflecting extremes of inequality

Question 2

Solow-Swann Growth Model (1956)

Answer 2

• Assumes diminishing returns to investment
• Capital should move to poorer countries (higher marginal productivity)
• Idea: poorer countries will “catch up” with richer ones

Question 3

Barriers to Convergence - Washington Consensus & structural adjustment (1970s onward)

Answer 3

• Supply-side reforms, market liberalisation, trade openness
• Assumes macroeconomic orthodoxy leads to convergence
• Critiqued by Saad-Filho (2013) for being ideologically driven

Question 4

Obstacles

Answer 4

• IP rights prevent technology transfer (Muzaka, 2011)
• Global value chains allow MNCs to avoid taxation
• Colonialism created initial unequal advantages
• Inequality shaped by policy, history, and ideology

Question 5

The Global 1% (Oxfam, 2018)

Answer 5

• Top 1% received 27% of global income growth in previous year
• Bottom half received 12%
• 82% of global wealth growth went to the top 1%
• No increase in wealth for bottom 50%
• In 2018: 26 people owned the same wealth as the bottom 50%, down from 62 people in 2015

Question 6

Thomas Piketty – r > g

Answer 6

Over human history:
• r (rate of return on capital) = ~5%
• g (growth rate of economy) = 0–5%
• Inheritance perpetuates inequality
• Offset only by collapse, war, high growth, or progressive tax
• Rising executive pay contributes to recent inequality trends

Question 7

Branko Milanovic – “Citizenship Premium”

Answer 7

• Vries (2013): Industrialisation + imperialism created a permanent global divide
• Being born in a rich country boosts lifetime income
• Migration is a major tool to escape the inequality trap

Gaps amplified by:
• Egalitarian social security (e.g. Sweden)
• High mobility societies (e.g. US)

Question 8

Pros of Redistribution (OECD, 2014)

Answer 8

• Inequality prevents investment in education/skills
• Hinders productivity growth

Question 9

Critiques of Redistribution:

Answer 9

• Disincentivises work and growth via taxation
• Normative: depends on beliefs about the role of states/markets

Question 10

Fiscal Policy

Answer 10

Progressive taxes reduce inequality:
• Income tax banding, stamp duty, car tax

Regressive taxes worsen inequality:
• VAT, fuel tax, national insurance — poor pay proportionally more

Question 11

Public Spending

Answer 11

• Universal cash transfers, benefits, and services help reduce inequality

Question 12

Global Taxation Options

Answer 12

• Piketty: Global tax on capital (land, assets)
• Tobin Tax: 0.05% on financial transactions (aka Robin Hood Tax)
• OECD (2018): Advocates taxing wealth to address inequality