Auerbach, J. A. & Hassett, K. (2015) “Capital taxation in the 21st century“, VoxEU Organisation, 03 March.
Piketty’s justification for his proposed wealth tax relies on the notion that the rate of return on capital exceeds economic growth. This column challenges this basis, arguing that it fails to account for risk. The authors also examine the relative merits of a consumption tax, which may be more valid.
In Capital in the Twenty-First Century (Piketty 2014) Thomas Piketty presents a compelling story of the ascendency of capital and the powerlessness of the market forces to arrest the growing threat to democracy from growing wealth – and its increasing concentration in the hands of the few. Piketty prescribes a global, coordinated wealth tax as the antidote to this dystopian trend, arguing that only such a direct assault on wealth concentration will succeed where the other policies of governments – that already play large roles – in their respective economies have failed.
We take issue with Piketty’s facts, logic, and policy conclusions. The support for the view that there will be an inevitable rise in capital’s share is lacking. In addition, even if the world were as Piketty describes, a wealth tax finds little or no support either in Piketty’s own work or elsewhere in the literature.
Relevant posts:
- Corneo, G. (2014) “Public Capital in the 21st Century“, Friedrich Ebert Stiftung, Freie Uni Berlin & Social Europe Journal, Research Essay No.2, November.
- Ghosh, R. A., Qureshi Saeed, M. & Sugawara, N. (2014) “Regulating Capital Flows at Both Ends: Does it Work?“, IMF Publications, Working Paper 14/188, 17 October.
- World Economics Association (WEA) Real-World Economics Review, Issue no. 69, 07 October 2014 Special Issue on Piketty’s Capital.