Asset-Centred Redistributive Policies forSustainable Development

Pierre KohlerUnited Nations - DESA/DPAD/DSP, New York

September 25, 2014

CONTEXT

I UNDESA/DPADI World Economic and Social Survey 2014 on “Reducing

Inequality for Sustainable Development”I Basic motivation for looking at redistributive policies/this

paperI The growing concentration of wealth and income stands in

sharp contrast with the increasingly cooperative nature ofwealth production and creation processes

I Eradicating poverty without reducing inequality is impossible inour finite world

I Policy solutions need to simultaneously address issues ofresource allocation, income distribution and the scale of theeconomy

I Redistributive policies are part of any solution

PROPOSED APPROACH

I Most analyses/policiesI “Redistributive policies” = “fiscal policies”I Focus on income flowsI Overall objective: economic growth

I This paper proposes an alternative stock-flow approach toredistributive policies that encompasses income flows, butwhich is centred on the stock of income-generating assets

I Focus on income-generating assets better reveals blindspotswith regard to economic efficiency and, especially, social equityand environmental sustainability

I Overall objective: sustainable development

OBJECTIVES OF THE PAPER

I Propose an asset-centred analytical model of redistributivepolicies explaining why stocks of income-generating assets(e.g. human capital and wealth, including natural resources)matter for in-equity and un-sustainable development

I Review set of existing policiesI Make policy recommendations based on the comparison of

existing policies with the potential scope of redistributivepolicies

PAPER OUTLINE -Asset-Centred Redistributive Policies for SustainableDevelopment

1. REDISTRIBUTIVE POLICIES, IN-EQUITY ANDUN-SUSTAINABLE DEVELOPMENT1.1 An asset-centred analytical framework1.2 Stylized facts about redistributive policies and linkages to

in-equity and un-sustainable development2. REDISTRIBUTIVE POLICY TRENDS IN A CHANGING

CONTEXT2.1 Public expenditures and social spending2.2 Revenue mobilization

3. TOWARDS PROGRESSIVE ASSET-CENTEREDREDISTRIBUTIVE POLICIES FOR SUSTAINABLEDEVELOPMENT3.1 Definitions3.2 Institutions and policies3.3 International cooperation

AN ASSET-CENTRED ANALYTICAL FRAMEWORK

Two analytical figures:1. Private income-generating assets, redistributive policy

instruments and the income cycle2. Public income-generating assets and the revenue-expenditure

cycleQuestions:

I What are those two cycles? Who owns what? And what is therole of income-generating assets?

I How are those two cycles linked?I What are the linkages to in-equity and un-sustainable

development?

Figure: Private income-generating assets, redistributive policyinstruments and the income cycle

Figure: Public income-generating assets and the revenue-expenditurecycle

LINKAGES TO IN-EQUITY AND UN-SUSTAINABLEDEVELOPMENT

Stylized facts and linkages:I The declining impact of redistribution and rising income

inequality at the global levelI Redistribution of income and in-equality of outcomeI Redistribution of income-generating assets and in-equality of

opportunityI Human capitalI Wealth

I Redistributive policies and the un-sustainable use andun-equitable access to natural resources for present and futuregenerations

Figure: The declining impact of redistribution and rising incomeinequality at the global level

02

46

8In

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se in

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i net

sin

ce 1

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(in p

oint

s)

3035

4045

5055

Gin

i ind

ex (i

n po

ints

)

1970 1980 1990 2000 2010year

Gini net (LHS) Gini market (LHS) Increase in Gini net since 1970 (RHS)

I 7 points increase, 75 per cent of world populationI Limitations of Gini indicator, SWIID database (version 4.1)I The role of taxes and transfers: why taxes matter?

Figure: Redistribution of income and in-equality of outcome

Northern America

Eastern AfricaMiddle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South AmericaCentral Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western AsiaEastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

2025

3035

4045

Tota

l rev

enue

(as

a sh

are

of G

DP)

0 5 10 15Decline in post-tax Gini index

Northern America

Eastern AfricaMiddle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South AmericaCentral Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western Asia

Eastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

2530

3540

4550

Tota

l exp

endi

ture

s (a

s a

shar

e of

GD

P)

0 5 10 15Decline in post-tax Gini index

I Larger public sectors reduce inequality more significantlyI Progressivity/regressivity of revenue mobilization/expenditure matters:

Southern Africa vs. Southern Europe (VAT and capital expenditure)

Figure: Redistribution of income-generating assets and in-equality ofopportunity (i) human capital

Northern AmericaEastern Africa

Middle Africa

Northern Africa

Southern Africa

Western Africa

CaribbeanCentral America

South America

Central Asia

Eastern Asia

Southern AsiaSouth-Eastern Asia

Western Asia

Eastern EuropeNorthern EuropeSouthern Europe

Western Europe

Australia and New Zealand

Melanesia

3040

5060

Gin

i ind

ex

2 4 6 8 10 12Public expenditure on health

Northern AmericaEastern Africa

Middle Africa

Northern Africa

Southern Africa

Western AfricaCaribbean

Central America

South America

Central Asia

Eastern Asia

Southern AsiaSouth-Eastern Asia

Western Asia

Eastern Europe

Northern EuropeSouthern Europe

Western Europe

Australia and New Zealand

Melanesia

3040

5060

50 60 70 80Life expectancy

I MDG: social spending fosters human development and economic growthI More unequal subregions tend to allocate fewer resources to human

development, resulting in lower life expectancy/education

Figure: Redistribution of income-generating assets and in-equality ofopportunity (ii) wealth

2040

6080

100

23

45

67

1900 1980 2000 20101914-18 1929 1939-45

EU capital stock/GDP (LHS) US capital stock/GDP (LHS)EU top 10 per cent wealth share (RHS) US top 10 per cent wealth share (RHS)EU top 10 per cent income share (RHS) US top 10 per cent income share (RHS)

I Piketty data: capital stock accumulation and the mutually reinforcingdynamic between wealth and income inequality

I Controversy about r>g...

Figure: Redistributive policies and the un-sustainable use andun-equitable access to natural resources for present and futuregenerations

ItalyUnited Kingdom

Korea

Germany

France

Australia

Spain

Japan

Canada

United States

TurkeyBrazil

South AfricaChina

ArgentinaMexico

India

05

1015

20CO

2 em

issio

ns p

er c

apita

(m

etric

tons

)

-1 0 1 2 3 4Environmental tax revenue (as a share of GDP)

Note: High income=blue; upper middle income=maroon; lower middle income=green.

I Higher environmental tax revenue is associated with lower carbonemissions per capita, but environmental taxes remain underexploited

I Regressive? What about progressive consumption taxes related toquantities consumed (e.g. frequent flyer tax instead of rewards)?

REDISTRIBUTIVE POLICY TRENDS IN A CHANGINGCONTEXT

Stylized facts:I Since 2000, public social spending (as a share of GDP)

increased in most developing regions, but less than indeveloped regions, except for LAC

I Social protection (pensions, unemployment insurance, etc.) asa share of GDP is 3 to 6 times higher in developed countries

I Total government revenue amounted to 42 % of GDP indeveloped countries in 2010, around 35 % of GDP intransition economies and in the Middle East and NorthAfrican countries, and between 20% to 28 % of GDP in otherdeveloping regions

I Shifting towards regressive tax structuresI Declining environmental tax revenueI Dwindling net wealth taxesI Tax abuses: tax avoidance and tax evasion on the riseI Privatization of public income-generating assets

TOWARDS PROGRESSIVE ASSET-CENTEREDREDISTRIBUTIVE POLICIES FOR SUSTAINABLEDEVELOPMENT

I DefinitionsI Policies and institutionsI International cooperation

Redefining equity and development in sustainable terms

I Focusing on asset inequality, not income povertyI Enabling trade-offs between economic growth, social equity and

environmental sustainabilityI Redefining the metrics of equity and development

Building institutions and designing policies enablingasset-centred redistributive policies for equity andsustainable development

I Modernizing tax administration for increased and progressive taxrevenue mobilization

I More progressive tax systems for reducing inequality of outcomeI Shifting the tax base towards wealth for enhancing equality of

opportunityI Shifting the tax base towards environmental externalities for

incentivizing sustainable production and consumption, and shortervalue chains

I Socializing natural resource rents and/or ownership to ensuresustainable use and equitable access for present and futuregenerations

I Redistributing income-generating assets for economic democracyand sustainable development

I Investing in people: a rights-based approach to human development

Fostering international cooperation

I Bridging the gap with ODA for public social spending and revenuemobilization

I Promoting financial transparency to prevent tax abuses by HNWIsand TNCs

I Addressing harmful tax competition through unitary taxation tocombat tax avoidance

I Taxing mobile capital (unilaterally) to eradicate extreme wealth andreduce international inequality

Asset-Centred Redistributive Policies forSustainable Development

Pierre KohlerUnited Nations - DESA/DPAD/DSP, New York

September 25, 2014