October 2004 Luigi Bernardi 1

Dept – Università di Pavia________________________________________

Growth, taxation and the long run evolution of top incomes

Discussion of A. Atkinson’s opening lecture

Luigi Bernardi-Università di Pavia

XVI Riunione Scientifica Siep

Pavia, October 7th, 2004

October 2004 Luigi Bernardi 2

Dept – Università di Pavia________________________________________

Main critical features of

the general model

• Decreasing marginal productivity of capital

• Exponential increase of population

• Relevance of top incomes’ share for the overall distribution of incomes (Lc↓, Gw↑)

October 2004 Luigi Bernardi 3

Dept – Università di Pavia________________________________________

Top rates and share of top incomes

Model Top rate Share of Overall top incomes Inequality

- Managerial +/- +/- -/+

- Accumulation +/- +/- -/+

- New money +/- +/- -/+

October 2004 Luigi Bernardi 4

Dept – Università di Pavia________________________________________

National PIT: Top marginal rates 1985 2002 Changes

Canada 34 29 -5France 65 52.7 -12.3Germany 56 48.5 -6.5Italy 65 45 -20 Japan 70 47.1 -22.9The Netherlands 72 52 -20Spain 66 48 -18United Kingdom 60 40 -20United States 50 38.6 -11.4

Average (unwh.) 59.8 44.5 -15.3

October 2004 Luigi Bernardi 5

Dept – Università di Pavia________________________________________

Why to increase inequality?• Ex ante inequality is already increasing

• Redistribution through spending not be over valuated:

- pensions & social contributions in a life-time horizon - social services mainly consumed by the middle class

• How much more efficiency and simplification?

• Political economy factors:

- top 1% are few voters

- different ideological orientation of parties rates cutting

• More convincing evidences:

\ - correlation with levels of spending

- fiscal illusion, being difficult to cut middle income rates

October 2004 Luigi Bernardi 6

Dept – Università di Pavia________________________________________

What in Italy?

• Just unreliable fiscal data for 1976 – 1999

Year Top rate Gross top 1% Disp. top 1%

1976 72 9.5% 7.9%

1980 72 8.2% 7.0%

1985 65 7.1% 5.5%

1990 50 8.0% 6.4%

1993 51 8.2% 6.5%

1999 45.5 8.9% 6.8%