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Abstract:

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CEP Election Analysis
Inequality: Are we really 'all in this together'?
Gabriel Zucman
April 2015
Paper No' CEPEA030:
Full Paper (pdf)

Tags: inequality; wages; wealth; taxes; #electioneconomics

The UK's top 1% have between 12.5% and 15.5% of all income. This is mid-way between the United States (20%) and Continental Europe (8%). This share has been rising steadily since the late 1970s, mainly due to labour income (wages), but also with a role for capital income (dividends, capital gains, etc.). In the global financial crisis of 2008-09 inequality fell, but has been stable since then. It is too soon to tell whether inequality will resume its rising trend as the economy fully recovers. Overall, coalition policies have been mainly regressive. Tax credit and benefit cuts took more away in the bottom half of the income distribution than they gained from higher income tax allowances.

Looking forward, wealth will be increasingly important for inequality as it is rising faster than aggregate income, and the concentration of capital income is much greater than the concentration of labour income. To combat inequality, policy should be focused on wealth (in particular inheritance) taxation, closing loopholes for capital income (e.g., non-domiciled residents), and increasing skills, especially for the disadvantaged.