Financing socially sustainable public investment
The French star economist Thomas Piketty has shown that wealth inequality in the developed nations is continually increasing. Public investment in infrastructure or in education and healthcare could reduce inequality.
But, where would the money for such investments come from, and what are the social implications of different ways of financing them? Two current MCC studies show that the taxation of capital income reduces inequality, that a consumption tax has a neutral effect, and that an income tax increases inequality.
These findings contradict those of earlier economic research that found no impact of various sources of financing on inequality. Indeed, these former studies assumed that all households, whether rich or poor, have the same way of dealing with money. Yet many empirical studies have shown that rich households save a higher proportion of their income than do poor households. They also have a “more patient” investment behavior and think more about the future.
The team of authors, led by the two MCC researchers David Klenert and Linus Mattauch, is the first to investigate these behavioral differences using a theoretical model. Their approach bridges the gap between the neoclassical school of economic thought and post-Keynesian economics.
The findings are also of great relevance for advancing socially acceptable investment in climate protection, which requires extensive infrastructural changes (i.e., new power lines and more public transport). This can only be achieved if the distributional effects are taken into account in policy design and implementation.
The full texts are available at:
On the MCC website: