Economic growth and unemployment are not helped by cutting taxes for the rich according to an academic analysis
Amid growing calls for the richest in society to face a larger share of the costs of the pandemic, a new study suggests lower taxes for the wealthy does not benefit the economy.
The paper, The Economic Consequences of Tax Cuts for the Rich, is authored by academics at the London School of Economics (LSE) and King’s College London.
Using data from the last five years, it looks at tax cuts and economies of 18 OECD member countries including Canada, finding that taxes on the rich have been falling for the past 50 years.
“Our results show that…major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform. The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of 0.8 percentage points,” the study says.
Not significant impact A recent report from Canada’s Fraser Institute says that a wealth tax would be unnecessary and damaging.
But the LSE/King’s study found that major tax cuts for the rich do not significantly affect economic growth (GDP per capita) or employment rates. Statistically, the effects are “indistinguishable from zero.”
The authors say that their findings are contrary to the idea that lower taxes prompt greater working hours and effort from wealthy individuals, that benefits economic growth.
“Our results might be welcome news for governments as they seek to repair the public finances after the COVID-19 crisis, as they imply that
they should not be unduly concerned about the economic consequences of higher taxes on the rich,” said Dr Limberg, Lecturer in Public Policy at King’s College London.
Read about the latest paper from @LSEInequalities on the effects of tax cuts for the rich in 18 advanced economies in @businessinsider https://t.co/aWX9f7vmIH
— LSE (@LSEnews) December 16, 2020
