Richard Blundell: “The more tax revenue is collected, the more important it is to do it more efficiently and fairly”
What effects the pandemic has had on inequality in the short and long term and which policies implemented by governments have been most successful is what British economist Richard Blundell has revealed about Chile.
The current academic at University College London (UCL) and director of the UK’s Institute for Fiscal Studies is one of the most renowned experts in areas such as microeconomics, inequality, taxation and public finance: he is also one of the 20 most cited economists in the world. He has been shortlisted for the Nobel Prize several times, and since 2014 has been knighted by the United Kingdom, for his services to economics and the social sciences.
During his visit to Chile, at the invitation of the Faculty of Economics (FEN) of the University of Chile (with which he has links through the professor of that institution and the former Minister of Transport, Andrés Gómez Lobo, who was a student at UCL), Blondel presented the results of his latest research “Inequality and the Covid Crisis”, It showed that support programs to maintain employment and transfers from the state helped reduce inequality during the health crisis, at least in the short term. However, the decline in issues such as mental health, particularly among poorer groups, and the restrictions that were based on work and school attendance, affect the incomes of groups with fewer resources in the long term, which also reduces social mobility.
He is now working on a similar project on Latin America, with the support of the Islamic Development Bank, and other economists, such as the Chilean Andres Velasco and the Italian Orazio Atanasio, also participate in it.
How has the pandemic changed the perception of inequality?
– It has changed our view on this issue, as well as on what policies we might need to address it and how we can think about inequality post-Covid. Because Covid has exacerbated already existing inequalities.
This has led to increased concern about inequality and what needs to be done to deal with it during and after the pandemic. What do you think of this trend?
It’s true that in the past decade or so, inequality has risen to the top of people’s minds, perhaps since the financial crisis. It has been highlighted for many reasons, some of which have to do with people’s experience that they are more stagnant in their working lives and their children are often seen as having less income than their parents. It is the first time this has happened in many generations, especially in Europe and North America. So there’s a kind of view that things are going downhill, people think that in many aspects of society, not just income and wealth, they see different inequalities, whether it’s about family structures, about their children’s progress, about education, health, etc. This gives us a new perspective for insights outside the usual framework of inequality.
Shouldn’t you just focus on income, then?
– You don’t have to just talk about income, cash transfers and minimum wages. In fact, on income, most economies handled short-term shocks well, much better than they did during the financial crisis, and in fact simple measures of income inequality fell in Europe over that period. But if you search below, you can see various other things.
Did direct remittances reduce inequality during the pandemic?
-yes. Government transfer policies were very large, very interactive, new policies had to be devised quickly, and generally worked to support the income of most people. I’ve looked at about 15 different countries in Europe and North America. In all cases, the usual measures of income inequality were reduced.
But those policies were contingent, and were not intended to be maintained in normal times…
-So it is. So you have to focus on other things that matter to inequality. Because if you look at what happened, the biggest losses during that period were in education, with schools closed. This is true everywhere, even in Chile. This has a very large social impact, which is why, in many cases, people from more disadvantaged backgrounds will have a much smaller contribution to education. The “great equations” have been closed for a while and this really matters because the inequalities in the home matter a lot more: how much space you have, if you have internet, if your parents are educated, all of that starts to play a role, an even more important role.
What is the impact of that?
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—There is great concern that this change that has occurred will have a long-term impact on inequality. Also at work, people who could work at home were usually more educated, while others were simply boxed in. Workers who have not been able to work are generally compensated, as long as they are not informal, but have continued to lose work experience. These are the things that have a long-term effect. And then of course there was a major change in supply chains and other things that drove up prices. Then there is an energy crisis.
What role should government play in combating inequality?
– I think there has to be some kind of refocusing of policies, not only because of what happened with Covid, but also looking at the longer term. In a way, the kind of politics we’ve used to fight poverty and inequality is cash. Transfers, minimum wages, etc. are short-term measures. It’s kind of patchy, it works, and we’ve seen it work during the pandemic, but it doesn’t solve any of the underlying drivers of inequality. And in fact, it may not always do so well in this regard. So the kind of refocusing that we think about in government policy is thinking about measures that improve human capital, good career progression, good jobs.
In Chile, the government is working on a tax reform that focuses on raising taxes for the rich. Is this a good way to fight inequality?
—I don’t know what’s going on in Chile in detail, but in general, one thing is for sure, most of the things we’re trying to tackle now are going to require more government revenue and if you’re going to increase government revenue, you usually have to do that by taxing a larger number of people, so you usually want to move to a broader tax system. Another thing is that the more tax revenue is collected, the more important it is to do it efficiently and fairly. So I think in general, all tax systems are ready for some reform in light of the inequality that we’re seeing and in light of the need to increase government revenue to address both the inequality and the energy crisis and all that stuff.
How do you balance high taxes to combat inequality and being an attractive place for investors?
“It’s hard to strike a balance, but it has to be done. There are some things that work together. For example, a good business environment is also an environment with a skilled workforce that adapts to new technologies, a transportation system, and a tax system that works very efficiently. Most economies don’t have that.” So there’s a first step there, but of course you don’t want a tax system that discourages investment in innovation.
So, it’s not just the tax rate that matters…
– No, it’s not just a matter of types, but also, for example, of organizing the work of tax credits. The typical case is that it would be better to get an investment tax credit associated with an ongoing investment than an exemption for future benefits. There are ways to give subsidies to businesses along with a redistributive tax system.
Is system stability relevant?
Yeah, I think, I think we’ve seen that with recent events in the UK as well. The first concern of any type of business regarding its investments is to have a stable environment and efficient organization of work and taxation.
What do you think of the wealth tax?
“It is very difficult to make a good wealth tax. In general, there are many things that go wrong with capital taxes that can be fixed in a sensible way without an estate tax. But taxing stocks is always a problem, it is better to think about, for example , in capital gains. There are many kinds of distortions in capital gains. One of them is that people can convert their ordinary income into capital gains. So this kind of rearranging your income to get a lower tax rate is something you want to avoid in the tax system. And of course , the easiest wealth taxes to collect are property taxes, which are relatively easy to measure and collect compared to other wealth taxes.Remember that wealth taxes in many countries are over, which indicates that unless they are done very well, it will become very difficult to regulate Tax considered fair.
What do you think of the global minimum corporate tax policy, which is set at 15%?
We are in a different world in terms of the way taxes were collected and tax systems were conceptualized 40 years ago. We deal with multinational companies, with workers on the move. We’re in a very international environment and some sort of coordination and collaboration is necessary, otherwise all we get is some kind of inefficient tax competition. The bottom rate is a very basic way to do it, but I think there’s a good reason for tax formatting because ultimately the return is very mobile.
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