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\author{Emmanuel Saez \\ UC Berkeley}
\date{Fall 2024 ECON 2}

\title{Inequality} \onlyslides{1-300}

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\begin{document}

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%\maketitle
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\begin{slide}
\includepdf[pages={1}]{title.pdf}
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\begin{slide}
\begin{center}
{\bf INTRODUCTION}
\end{center}
Standard economics is based on rational and self-centered individuals who care only about their own utility

Yet obvious that humans are also \textbf{social beings} who have a sense of fairness/care about relative position and inequality

%$\Rightarrow$ Scope for government intervention limited to market failures

Humans work and produce together at many levels: families, workplaces, communities, nation states

Then joint product needs to be distributed $\Rightarrow$ Explains why humans have sense of fairness and are so attuned to inequality

In long human evolution, market is only a very recent modality of allocating production, not always viewed as fair

Nation state level: In advanced market economies, we pool 30-50\% of incomes through government using taxes to
fund public goods and transfers

\end{slide}



\begin{slide}
\begin{center}
{\bf INCOME AND WEALTH}
\end{center}
Two key economic concepts for inequality: \textbf{Income} and \textbf{Wealth}

Economic production happens with labor and capital

Income is a flow = Labor income + Capital income

Capital income is the return on capital or wealth

Private wealth=value of privately owned and marketable assets 

Private wealth includes real estate (land+buildings), corporate and business equity, deposits+bonds (loans to others), minus debts (mortgage debt, student debt, consumer credit)

%Aggregate US {\bf Private} Wealth $\simeq$ 6$\times$Annual National  Income
%(big increase in recent years)

Total wealth reflects both \textbf{capital stock accumulated through savings} and \textbf{pure price effects}
\end{slide}


%\begin{slide}
%\begin{center}
%{\bf Quiz}
%\end{center}
%\textbf{Consider a country where median wealth is zero and mean wealth is positive say (\$500K per person). What we can say about the Gini coefficient for wealth?}
%
%A. It is 
%
%B. Each family should pay the full cost for their children except poor families for whom the government should pay
%
%C. Only the rich should pay the full cost and government should pay for the middle and poor. 
%
%D. The government should offer free public education for everybody (rich and poor)
%
%\end{slide}


\begin{slide}
\begin{center}
{\bf Macro-aggregates: Labor vs. Capital Income}
\end{center}

\textbf{National Income} = income received by residents 

Labor income = 75\% of national income 

Capital income = 25\% of national income (and increasing)

Private wealth  $k \simeq 500\%$ of national income 
(and increasing)

%Rate of return on wealth $ r \simeq 5-6\%$

Private wealth has increased (mostly price effects) while public wealth has declined (public debt increases)

%In GDP, gross capital share is higher (35\%) because it includes
%depreciation of capital


\end{slide}

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%\begin{slide}
%\begin{center}
%{\bf Bigger view on government (Saez 2021)}
%\end{center}
%Economists have a narrow minded view of individual behavior: selfish and rational individuals interacting through markets
%
%But social cooperation is pervasive at many levels: families, workplaces, communities, nation states
%
%%Cooperation then requires distribution explaining why humans are so attuned to inequality
%
%%Beyond subsistence, value of income is largely relative
%
%Governments are a formal way to organize cooperation/distribution
%
%Archaic human societies depended on social cooperation for protection and taking care of the young, sick, and old
%
%$\Rightarrow$ Explains best why our modern nation states provide defense and education, health care, and retirement benefits
%
%Replacing social institutions by markets does not always work  
%
%%\small E.g., Retirement benefits: Saving for your own retirement is economically rational but in practice most people unable to do so unless institutions (employers/government) help them 
%
%
%\end{slide}


\begin{slide}
\begin{center}
{\bf Income Inequality: Labor vs. Capital Income}
\end{center}

Individuals derive market income (before tax) from {\bf labor} (work) and
{\bf capital} (ownership)

1) {\bf Labor income inequality} is due to differences in working abilities
(education, talent, physical ability, etc.), work effort (hours of
work, effort on the job, etc.), and institutions (minimum wage, unions, etc.), social norms
(discrimination, gender norms, etc.)

2) {\bf Capital income inequality} is due to differences in
wealth (due to past saving behavior and inheritances
received), and the rate of return on wealth (price effects and capital income)

Capital Income (or wealth) is much more concentrated than Labor
Income

%Top 1\% wealth holders have 1/3 of total wealth. Bottom 50\% wealth holders own zero wealth.
%Top 1\% labor income earners have about 15\% of total labor income. [Top
%1\% incomes have 20\% of total income]

\end{slide}



\begin{slide}
\begin{center}
{\bf Income Inequality: Labor vs. Capital Income}
\end{center}

Capital income (or wealth) is always more concentrated than labor
income. Most people only have labor income and very little capital income.
In the United States:

Top 1\% wealthiest owns 40\% of total wealth. Bottom 50\% poorest have
almost no wealth.

Top 1\% incomes earn 20\% of total national income on a pre-tax basis. Bottom 50\% earns
12\%.

Top 1\% labor income earners have 15\% of total labor income

World Inequality Lab \href{https://wid.world/}{wid.world}
provides standardized statistics for many countries and worldwide

Income and wealth inequality are pretty similar for the World as a whole
and within the US

\end{slide}

\begin{slide}
\includepdf[pages={63}, scale=.97]{taxintro_ch17_new_attach.pdf}
\end{slide}



\begin{slide}
\begin{center}
{\bf Income Inequality Measurement}
\end{center}
Income (or wealth) inequality can be measured by many indexes such as income (or wealth) shares.

Most famous inequality index: \textbf{Gini coefficient}

Gini = 2 $\times$ area between 45 degree line and \textbf{Lorenz curve}

Lorenz curve $L(p)$ at percentile $p$ is fraction of total income
earned by individuals below percentile $p$ (=fraction $p$ of the population with lowest incomes)

$0 \leq L(p) \leq p$

Gini=0 means perfect equality

Gini=1 means complete inequality (1 person has all income)

Weakness: Gini is abstruse (top income shares more intuitive)

\end{slide}

\begin{slide}
\includepdf[pages={1}, scale=2]{gini.pdf}
\end{slide}

\begin{slide}
\includepdf[pages={1}]{USgini2021.pdf}
\end{slide}


\begin{slide}
\begin{center}
{\bf Quiz}
\end{center}
\textbf{Why does the slope of the Lorenz curve increase?}

A. Because there is inequality

B. Because people are ranked from poorest to richest on the x-axis.

C. Because each percentile earns a larger share of income than the preceding percentile

D. All of A., B., C.

E. None of A, B, C, D

\end{slide}



\begin{slide}
\begin{center}
{\bf Key Empirical Facts on Income Inequality}
\end{center}
1) In the US, labor income inequality has increased substantially
since 1970: debate between skilled biased technological progress
view vs. institutions view (min wage and unions) 

2) Gender gap has decreased but remains substantial 

3) In the US, top income shares dropped dramatically from 1929 to
1950 and increased dramatically since 1980 

%4) Bottom 50\% pre-tax income per adult have stagnated since 1980
%in spite of a 60\% increase in average national income 

%3) Top incomes used to be primarily capital income. Now, top
%incomes are divided 50/50 between labor and capital income (due to
%explosion of top labor incomes with stock-options, bonuses, etc.)

4) Inequality very high in all industrialized countries in 1900 and then fall substantially by mid-20th century

5) Surge in top income shares since 1980 much higher in US-UK than Continental Europe
or Japan %[Atkinson, Piketty, Saez JEL'11]

\end{slide}

\begin{slide}
\includepdf[pages={2}, 
pagecommand={
\begin{tikzpicture}[remember picture, overlay]  \node at (10, 7) {Gini coefficients for wage earnings in the United States};
\end{tikzpicture}}
]{taxintro_ch17_new_attach.pdf}
\end{slide}

\begin{slide}
\begin{center}
{\bf Quiz}
\end{center}
\textbf{Why is the Gini coefficient for all workers higher than the Gini for men and the Gini for women in the 1950s-60s?}

A. Because men have more inequality in earnings than women

B. Because women have more inequality in earnings than men

C. Because fewer women worked

D. Because women workers earned a lot less than men

E. None of A, B, C, D

\end{slide}



\begin{slide}
\includepdf[pages={41}
pagecommand={
\begin{tikzpicture}[remember picture, overlay] \node at (current page.center) {United States};
\end{tikzpicture}}
]{taxintro_ch17_new_attach.pdf}
\end{slide}

\begin{slide}
\includepdf[pages={59}]{taxintro_ch17_new_attach.pdf}
\end{slide}

\begin{slide}
\includepdf[pages={1}, scale=2]{world-women.pdf}
\end{slide}


\begin{slide}
\includepdf[pages={50}]{taxintro_ch17_new_attach.pdf}
\end{slide}

%\begin{slide}
%\begin{center}
%{\bf METHODOLOGY ON TOP INCOME SHARES}
%\end{center}
%Traditional survey data (such as Current Population Survey in US) cannot measure top incomes well
%(small sample size, measurement error, top coding). Tax data much superior:
%
%\textbf{1) Top income shares} using income tax data tabulations:
%(Kuznets 1955 for US, Piketty 2001 for France, Piketty-Saez 2003 for US, Atkinson-Piketty-Saez JEL11 survey)
%
%Fiscal income is incomplete: misses nontaxable fringe benefits, undistributed corporate profits,
%evaded income 
%
%\textbf{2) Distributional  national accounts} consider broader definition of income consistent with national income
%from national accounts. Conceptually sounder but requires imputations.
%
%\textbf{3) Worldwide} coverage in World Inequality Database wid.world: income (pre-tax vs. post-tax), wealth, gender stats for all countries
%
%
%
%
%\end{slide}
%
%
%\begin{slide}
%\includepdf[pages={1}, scale=.97]{materials/figtop1a.pdf}
%\end{slide}
%
%\begin{slide}
%\includepdf[pages={1}, scale=.97]{materials/figtop1b.pdf}
%\end{slide}





%\begin{slide}
%\includepdf[pages={35}, scale = 1]{taxintro_ch17_new_attach.pdf}
%\end{slide}
%
%\begin{slide}
%\includepdf[pages={48, 49}, scale = 1]{taxintro_ch17_new_attach.pdf}
%\end{slide}


%\begin{slide}
%\includepdf[pages={57}]{taxintro_ch17_new_attach.pdf}
%\end{slide}

\begin{slide}
\includepdf[pages={47}]{taxintro_ch17_new_attach.pdf}
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\begin{slide}
\includepdf[pages={33}, scale = .9]{taxintro_ch17_new_attach.pdf}
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\begin{slide}
\includepdf[pages={43, 44, 45, 46}]{taxintro_ch17_new_attach.pdf}
\end{slide}

\begin{slide}
\begin{center}
{\bf Quiz}
\end{center}
What would be a fair distribution of income?

A. When the top 10\% earns 10\% of total income

B. When the top 10\% earns 30\% of total income

C. When the top 10\% earns 50\% of total income

D. When the top 10\% earns 70\% of total income

E. The share going to the top 10\% is irrelevant

\end{slide}



\begin{slide}
\includepdf[pages={68}]{taxintro_ch17_new_attach.pdf}
\end{slide}

\begin{slide}
\begin{center}
{\bf INEQUALITY AND GROWTH}
\end{center}
Inequality provides incentives but can also entrench privilege

Much interest in the relationship between inequality and growth but hard to identify compellingly

Pre-20th century: growth typically associated with increasing inequality (booming cities). Disasters (plagues, wars, state collapse) are equalizing (Scheidel 2017)

Mid-20th century achieves high growth with decreasing inequality in richer countries

Communist countries don't do well in growth after the 1970s (e.g. North vs. South Korea)

Last 4 decades: growth again associated with rising inequality (e.g. India, China)

\end{slide}

\begin{slide}
\includepdf[pages={43}, scale=.95]{capitalincometax_attach.pdf}
\end{slide}

\begin{slide}
\begin{center}
{\bf Poll}
\end{center}
\textbf{How do you feel about the US billionaire class doing so well?}

A. I like it, it motivates me to work harder to join this special group

B. I like it, their wealth reflects their incredible contributions that benefit us all 
(tesla, amazon, facebook, google, microsoft, etc.)

C. I am indifferent to it

D. I dislike it because in a fair economic system, wealth shouldn't concentrate so
much to the top

E. I dislike it because their enormous wealth gives them too much power to influence society
and politicians

\end{slide}



\begin{slide}
\begin{center}
{\bf Top Wealth as Power}
\end{center}
US wealth concentration has increased greatly since 1980

At the very top, wealth accumulation looks like power accumulation in pre-democratic states

1) Entrepreneur creates a new fast growing business 

2) Uses its monopoly power to fend off competitors: buying or thwarting competitors, influencing government
through lobbying/contributions, influencing society through foundations

3) Business can become dynastic and passed down generations

Under this view, curbing the excessive power of top wealth is similar to creating more democratic institutions

\end{slide}






%\begin{slide}
%\includepdf[pages={8}, scale=1.1]{taxintro_ch17_new_attach.pdf}
%\end{slide}

%\begin{slide}
%\includepdf[pages={9}]{taxintro_ch17_new_attach.pdf}
%\end{slide}

%\begin{slide}
%\begin{center}
%{\bf POVERTY RATE}
%\end{center}
%
%A popular measure of disparity used is the poverty rate defined as the fraction of households below
%the poverty line
%
%Poverty line can be defined in absolute terms as in the US, or in relative terms (such as 50\% of median
%household income) as in European countries
%
%US poverty line developed in 1964 by Molly Orshansky as 3 times the cost of an adequate diet bundle. Poverty line depends
%on size of household.
%
%Since then, numbers have just been updated from inflation
%
%Income definition used is incomplete: fails to include non-cash transfers, and is before income tax and income
%tax credits
%
%\end{slide}


\begin{slide}
\begin{center}
{\bf POVERTY RATE DEFINITIONS}
\end{center}
1) {\bf Absolute:} Fraction of population with disposable income
(normalized by family size) below {\bf poverty threshold} 
fixed in real terms (World Bank uses \$1.90/day in 2011 dollars for extreme poverty definition)

2) {\bf Relative:} Fraction of population with disposable income
(normalized by family size) below {\bf poverty threshold}
fixed relative to median (European Union uses 60\% of
median)

Absolute poverty falls in the long run with economic growth
but relative poverty does not 

%Absolute poverty captures both growth and inequality effects while
%relative poverty captures only inequality effects

Poverty stays in the debate in spite of huge growth since 1800
$\Rightarrow$ relative income is the relevant concept %(see e.g. Luttmer 2005 for an empirical study)

$\Rightarrow$ Health measures (mortality, stunting) are more relevant
absolute measures of deprivation in the long-run

%A recent study by Luttmer (2005) finds that individuals' self-reported well-being rises as their own income rises, but falls as their neighbors' incomes rise, suggesting that it is relative income, and not absolute income, that determines well-being.
\end{slide}


\begin{slide}
\includepdf[pages={42}]{taxintro_ch17_new_attach.pdf}
\end{slide}






%\begin{slide}
%\begin{center} {\bf WEALTH MEASUREMENT} \end{center}
%In the US, wealth distribution much less well measured than income distribution
%because no systematic administrative source (no wealth tax). 4 methods
%to estimate wealth distribution:
%
%\textbf{1) Surveys:} US Survey of Consumer Finances (SCF)
%
%Uses tax returns data frame to oversample top 1\%
%
%%Top 1\% wealth share has grown from 30\% in 1989 to 40\%
%%in 2010 [Kennickell '09, '12]
%
%Problems: small sample size (3500), measurement error, only every 3 years, starts in 1989, most recent is 2019
%
%Distributional Financial Accounts \href{https://www.federalreserve.gov/releases/z1/dataviz/dfa/index.html} {(web)}
%combine SCF and macro financial accounts to distribute US wealth
%at quarterly level since 1989 up to present (see Saez and Zucman JEP'20)
%
%Top 10\% wealth share grew from 67\% in 1989 to 77\% in 2019
%
%Top 1\% wealth share grew from 28\% in 1989 to 38\% in 2019
%
%
%\pagebreak
%
%\textbf{2) Estate multiplier method:} use annual estate tax statistics and re-weights individual 
%estates by inverse of death probability [based on age$\times$gender$\times$social class]
%
%Kopczuk-Saez NTJ'04 create series 1916-2000 and find fairly small increases in wealth
%concentration in recent decades
%
%Problems:  longevity of rich has increased faster than average, significant estate tax avoidance, 
%estates cover only the super rich [see Saez and Zucman 2019b]
%
%\textbf{3) Capitalization method:} use capital income from individuals tax statistics and estimates rates of returns
%by asset class to infer wealth: shows big increase
%in wealth concentration [Saez-Zucman '16]. Real-time in Blanchet-Saez-Zucman '22
%
%\textbf{4) Rich lists:} Forbes and Bloomberg magazines compile lists of US billionaires using public records
%on publicly traded stock ownership, estimates of private businesses, and diversified portfolios. Used to improve 
%estimates from 1) and 3).
%
%%Piketty (2014) compiles US (and Europe) wealth concentration series
%\end{slide}
%

%\begin{slide}
%\includepdf[pages={51, 50}]{capitalincometax_attach.pdf}
%\end{slide}
%
%\begin{slide}
%\includepdf[pages={41, 43}, scale=.95]{capitalincometax_attach.pdf}
%\end{slide}
%
%\begin{slide}
%\includepdf[pages={29, 26-28}, scale=1.1]{capitalincometax_attach.pdf}
%\end{slide}
%

\begin{slide}
\begin{center}
{\bf Role of Government in Inequality}
\end{center}
Government is instrumental in most aspects of economic life:

1) Government in charge of regulatory structure that affects
pre-tax inequality: min wage, work regulations, antitrust, etc.

2) Taxes: governments in advanced economies collect 30-50\% of National Income in taxes

3) Expenditures: tax revenue funds traditional \textbf{public goods} (infrastructure, public order and safety, defense),
and \textbf{welfare state} (education, retirement benefits, health care, income support)

%4) Macro-economic stabilization through central bank (interest rate, inflation control), fiscal stimulus, bailout policies

Taxes proportional to income and expenditures about equal per person reduce inequality

%In advanced economies, humans pool a large fraction of economic resources through government
\end{slide}


\begin{slide}
\includepdf[pages={37, 36}, scale=1.05]{introPE_attach.pdf}
\end{slide}



%\begin{slide}
%\begin{center}
%{\bf Govt Redistribution with Taxes and Transfers}
%\end{center}
%
%Government taxes individuals based on income and consumption and
%provides transfers
%
%$z$ is pre-tax income, $T$ taxes paid, $B$ transfers received.
%$y=z-T+B$ is post-tax income.
%
%Empirically, taxes $T$ are roughly proportional to income $z$
%(taxes are based on economic means)
%
%1) If inequality in $y$ is less than inequality in $z$
%$\Leftrightarrow$ tax and transfer system is redistributive (or
%progressive)
%
%2) If inequality in $y$ is more than inequality in $z$
%$\Leftrightarrow$ tax and transfer system is regressive
%
%a) If $y=z \cdot (1-t)$ with constant $t$, tax/transfer system is
%neutral
%
%b) If $y=z \cdot (1-t)+G$ where $G$ is a universal 
%transfer, then tax/transfer system is progressive 
%
%Actual tax/transfer systems in rich countries roughly like b) with $G$ welfare
%state transfers [education, health, retirement]
%\end{slide}

\begin{slide}
\begin{center}
{\bf Inequality in pre-tax vs. post-tax income}
\end{center}
Pre-tax income is income before taxes and transfers

Post-tax income is income net of all taxes and adding all transfers and public good spending

There is less inequality post-tax because taxes are roughly proportional to income while transfers tend to me
about the same per person

\end{slide}

%\begin{slide}
%\includepdf[pages={38}, scale=.95]{taxintro_ch17_new_attach.pdf}
%\end{slide}



\begin{slide}
\includepdf[pages={36}, scale=.9]{taxintro_ch17_new_attach.pdf}
\end{slide}

%\begin{slide}
%\includepdf[pages={58}, scale=.9]{taxintro_ch17_new_attach.pdf}
%\end{slide}

\begin{slide}
\includepdf[pages={1}, scale=1]{materials/pretax-posttaxWIR22.pdf}
\end{slide}



%\begin{slide}
%\begin{center}
%{\bf Federal US Tax System (2/3 of total taxes)}
%\end{center}
%1) Individual income tax (on both labor+capital income)
%[progressive](40\% of fed tax revenue)
%
%2) Payroll taxes (on labor income) financing social security programs [regressive] (40\% of revenue)
%
%3) Corporate income tax (on capital income) [progressive] (15\% of revenue)
%
%4) Estate taxes (on capital income) [very progressive] (1\% of
%revenue)
%
%5) Minor excise taxes (on consumption) [very regressive] (3\%
%of revenue)
%
%Fed agencies (CBO, Treasury, Joint Committee on Taxation) and think-tanks (Tax Policy Center)
%provide distributional Fed tax tables
%
%\end{slide}
%
%
%\begin{slide}
%\begin{center}
%{\bf State+Local Tax System (1/3 of total taxes)}
%\end{center}
%Decentralized governments can experiment, be tailored to local views, create tax competition and make redistribution harder (famous Tiebout 1956 model)
%hence favored by conservatives
%
%1) Individual + Corporate income taxes
%[progressive] (1/3 of state+local tax revenue)
%
%2) Sales taxes + Excise taxes (tax on consumption) [very regressive] (1/3 of
%revenue)
%
%3) Real estate property taxes (tax on housing wealth)
%[slightly progressive] (1/3 of revenue)
%
%See ITEP (2018) ``Who Pays'' for systematic state level distributional tax tables
%
%US Census provides Census of Government data
%
%%http://www.census.gov/govs/www/qtax.html
%
%\end{slide}


%\begin{slide}
%\includepdf[pages={19,20}]{taxintro_ch17_new_attach.pdf}
%\end{slide}


\begin{slide}
\begin{center}
{\bf Modern Tax Systems}
\end{center}
Taxes are a combination of progressive and regressive taxes = giant flat rate tax relative to income
(with some regressivity at the very top)

1) Consumption  taxes (Value-added-taxes outside the US, sales taxes, excise taxes) are regressive because poor consume
larger fraction of income than rich

2) Labor income taxes tend be regressive due to caps on payroll taxes and because top is mostly capital income

3) Individual income tax on labor+capital income is progressive except at very top (ultra rich don't need to ``realize'' income)

4) Corporate profits tax is progressive (as corporate ownership concentrated at top)

5) Inheritance/estate tax very progressive but small


%http://www.treasury.gov/education/fact-sheets/taxes/ustax.shtml
\end{slide}

%\begin{slide}
%\includepdf[pages={21}]{taxintro_ch17_new_attach.pdf}
%\end{slide}




\begin{slide}
\includepdf[pages={53, 54, 52}, scale=1]{taxintro_ch17_new_attach.pdf}
\end{slide}

%\begin{slide}
%\includepdf[pages={1}, scale = .95]{materials/F2-1corp.pdf} 
%\end{slide}

\begin{slide}
\includepdf[pages={1}, scale=.9]{materials/globaltax-fig4.pdf}
\end{slide}

\begin{slide}
\begin{center}
{\bf Poll}
\end{center}
\textbf{What do you think is the best tax system?}

A. A regressive tax system where the rich pay a smaller percentage than the middle and poor 

B. A neutral tax system where rich, middle, and poor all pay the same percentage 
of their incomes

C. Everybody pays the same percentage of their income, except those in poverty who should pay less

D. A progressive tax system where the rich pay a higher percentage of their income than the 
middle (and the poor pay even less)

\end{slide}


\begin{slide}
\begin{center}
{\bf Modern Transfer Systems}
\end{center}
Four pillars of the welfare state:

1) Children: child care, education $\simeq$ fixed amount per person

2) Sick: Universal health insurance $\simeq$ fixed amount per person
(US only rich country without universal health insurance)

3) Elderly: Pension benefits for everybody (benefits linked to lifetime earnings)

4) Those in need: disability and unemployment insurance, means-tested transfers (cash, food, housing if your income is low)
$\Rightarrow$ Lower income people receive more.

Transfer system approximately a fixed amount per person, and most of it is in-kind
(health, education, housing) not cash

\end{slide}

%\begin{slide}
%\includepdf[pages={36}, scale=1.05]{introPE_attach.pdf}
%\end{slide}

\begin{slide}
\begin{center}
{\bf Poll}
\end{center}
\textbf{What do you think is the fairest system to pay for K-12 (ages 5-18) education?
(1 year of schooling for 1 kid costs about \$17.5K/year in the US)} \href{https://educationdata.org/public-education-spending-statistics}{(web)} 

A. Each family should pay the full cost for their children 

B. Each family should pay the full cost for their children except poor families for whom the government should pay

C. Only the rich should pay the full cost and government should pay for the middle and poor 

D. The government should offer free public education for everybody (rich and poor)

\end{slide}


\begin{slide}
\begin{center}
{\bf Basic Income vs. Means-tested transfer: Mankiw quiz}
\end{center}

Consider an economy in which average income is \$50,000 but with much income inequality. To provide a social safety net, two possible policies A and B are proposed. Which one do you think is best?

A.  A universal transfer of \$10,000 to every person, financed by a 20-percent flat tax on all incomes.

B.  A means-tested transfer of \$10,000.  The full amount goes to someone without any income.  The transfer is then phased out: You lose 20 cents of it for every dollar of income you earn.  These transfers are financed by a tax of 20 percent on income above \$50,000.

C. Policies A and B are equally good

D. I don't understand the policies

%Which system would you prefer? Poll A, B, C (indifferent), D (don't understand the system)

\end{slide}

%\begin{slide}
%\includepdf[pages={82}, scale=.95]{tax-redistribution_attach.pdf}
%\end{slide}

\begin{slide}
\begin{center}
{\bf Modern social state and fairness}
\end{center}
Taxes roughly proportional to income = broad fairness appeal in isolation

Social transfers (child care, education, health) roughly equal per person and de-commodified = everybody gets access to quality education and health care = broad fairness appeal %in isolation

Very redistributive combination but somewhat hidden \\ $\Rightarrow$ Successful large social state (European countries)

Means-tested transfers are economically equivalent but reveal the redistribution $\Rightarrow$ Less generous social state (United States)

See Esping-Anderen '90 book for welfare-state regimes sociological analysis

\end{slide}


\begin{slide}
\begin{center}
{\bf Economists: Equity-Efficiency Tradeoff}
\end{center}
Even if market outcome is efficient, society might not be
happy with the market outcome because market equilibrium
might generate very high economic disparity across individuals

Governments use taxes and transfers to redistribute 
from rich to poor and reduce inequality

Redistribution through taxes and transfers might reduce
incentives to work (\textbf{efficiency costs})

$\Rightarrow$ 
Redistribution creates an \textbf{equity-efficiency trade-off} studied in \textbf{public economics ECON 131 at Berkeley}


\end{slide}



\begin{slide}
\begin{center}
{\bf REFERENCES}
\end{center}
{\small

Alvaredo, F., Atkinson, A., T. Piketty, E. Saez, and G. Zucman \emph{World Inequality Database},
\href{http://www.wid.world/} {(web)}

%Atkinson, Anthony B., Thomas Piketty, and Emmanuel Saez. ``Top Incomes in the Long Run of History.'' Journal of Economic Literature 49.1 (2011): 3-71.\href{http://elsa.berkeley.edu/~saez/atkinson-piketty-saezJEL10.pdf}{(web)}

Blanchet, Thomas, Emmanuel Saez, and Gabriel Zucman. 2022. ``Real-Time Inequality'' NBER Working Paper, No. 30229. 
\href{https://realtimeinequality.org/}{(web)}

%Blanden, J and Machin, S (2008) ``Up and down the generational income ladder in Britain: Past changes and future prospects'' \emph{National Institute Economic Review} 205 (1). 101--116. 
%
%Boserup,  Simon, Wojciech Kopczuk, and Claus Kreiner "Stability and Persistence of Intergenerational Wealth Formation: Evidence from Danish Wealth Records of Three Generations", October 2014
%\href{http://elsa.berkeley.edu/~saez/course131/WealthAcrossGen.pdf}{(web)}

Chancel, Lucas, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. \emph{The World Inequality Report 2022}, Cambridge: Harvard University Press, 2022. \href{http://wir2022.wid.world/}{(web)}

%Chetty, Raj, Nathan Hendren. ``The Impacts of Neighborhoods on Intergenerational Mobility'', Quarterly Journal of Economics, 133 (3), 1107--1162, 2018
%
%Chetty, Raj, Nathan Hendren, Patrick Kline, and Emmanuel Saez, ``Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States,'' \emph{Quarterly Journal of Economics}, 129(4), 2014, 1553-1623.
%\href{http://eml.berkeley.edu/~saez/chetty-friedman-kline-saezQJE14mobility.pdf}{(web)}
%
%Chetty, Raj, Nathan Hendren, Patrick Kline, Emmanuel Saez,  and Nicholas Turner ``Is the United States Still a Land of Opportunity? Trends in Intergenerational Mobility Over 25 Years,'' American Economic Review, Papers and Proceedings, 104(5), 2014, 141-147 \href{https://eml.berkeley.edu/~saez/chettyetalAERPP2014.pdf}{(web)}
%
%Chetty, Raj, Nathaniel Hendren, Maggie R. Jones, and Sonya R. Porter. ``Race and economic opportunity in the United States: An intergenerational perspective.'' Quarterly Journal of Economics, 2020  \href{https://opportunityinsights.org/wp-content/uploads/2018/04/race_paper.pdf}{(web)}
%
%Corak, Miles (2013), ``Inequality from Generation to Generation:  The United States in Comparison,'' in Robert Rycroft (editor), The Economics of Inequality, Poverty, and Discrimination in the 21st Century, ABC-CLIO.
%
%Corak, Miles, and Andrew Heisz, ``The Intergenerational Earnings and Income
%Mobility of Canadian Men: Evidence from Longitudinal Income Tax Data,''
%Journal of Human Resources, 34, no. 3 (1999), 504--533.
%\href{http://www.jstor.org/stable/pdfplus/146378.pdf} {(web)}

Esping-Andersen, Gosta. 1990 \emph{The Three Worlds of Welfare Capitalism}, Princeton University Press.

%Katz, Lawrence F., and David H. Autor. ``Changes in the wage structure and earnings inequality.'' Handbook of Labor Economics 3 (1999): 1463-1555. \href{http://elsa.berkeley.edu/~saez/course131/Katz-Autor99.pdf}{(web)}

Kopczuk, Wojciech, Emmanuel Saez, and Jae Song. ``Earnings inequality and mobility in the United States: evidence from social security data since 1937.'' The Quarterly Journal of Economics 125.1 (2010): 91-128.\href{http://elsa.berkeley.edu/~saez/kopczuk-saez-songQJE10mobility.pdf}{(web)}

%Luttmer, Erzo FP. ``Neighbors as negatives: Relative earnings and well-being.'' Quarterly Journal of Economics 120.3 (2005): 963-1002.\href{http://elsa.berkeley.edu/~saez/course131/Luttmer05}{(web)}
%
%Meyer, Bruce D., and James X. Sullivan. ``Consumption and Income Inequality in the US: 1960-2008.'' (2010).\href{http://elsa.berkeley.edu/~saez/course131/Meyer-Sullivan09}{(web)}

Piketty, Thomas, \emph{A Brief History of Equality},  Cambridge: Harvard University Press, 2022
\href{http://piketty.pse.ens.fr/en/equality}{(web)}

%Piketty, Thomas, and Emmanuel Saez. ``Income inequality in the United States, 1913-1998.'' The Quarterly Journal of Economics 118.1 (2003): 1-39.\href{http://elsa.berkeley.edu/~saez/pikettyqje.pdf}{(web)}

%Piketty, Thomas, and Emmanuel Saez. ``How Progressive is the US Federal Tax System? A Historical and International Perspective.'' The Journal of Economic Perspectives 21.1 (2007): 3-24.\href{http://elsa.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf}{(web)}

Piketty, Thomas, Emmanuel Saez, and Gabriel Zucman,  ``Distributional National Accounts:
Methods and Estimates for the United States'', Quarterly Journal of Economics, 133(2), 553-609, 2018
\href{https://eml.berkeley.edu/~saez/PSZ2018QJE.pdf} {(web)}

Saez, Emmanuel  ``Public Economics and Inequality: Uncovering Our Social Nature'', AEA Papers and Proceedings, 121, 2021
\href{https://eml.berkeley.edu/~saez/saez-AEAlecture.pdf} {(web)}

%Saez, Emmanuel and Gabriel Zucman, ``Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data'', \emph{Quarterly Journal of Economics}  131(2), 2016, 519-578
%\href{http://eml.berkeley.edu/~saez/SaezZucman2016QJE.pdf}{(web)}

Saez, Emmanuel and Gabriel Zucman. 2019. The Triumph of Injustice: How the Rich Dodge Taxes and How to Make them Pay, New York: W.W. Norton, 
\href{http://www.taxjusticenow.org} {(web)}

%Saez, Emmanuel and Gabriel Zucman. 2019b. ``Progressive Wealth Taxation''
%Brookings Paper
%\href{https://eml.berkeley.edu/~saez/saez-zucmanBPEAoct19.pdf}{(web)}

Saez, Emmanuel and Gabriel Zucman. ``The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts,'' Journal of Economic Perspectives 34(4), Fall 2020, 3-26.
\href{https://eml.berkeley.edu/~saez/SaezZucman2020JEP.pdf}{(web)} 

Scheidel, Walter. The great leveler: Violence and the history of inequality from the stone age to the twenty-first century. Princeton University Press, 2017.

}


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