Conversations with E21: Wojciech Kopczuk on Wealth Taxes
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Wealth inequality has worsened over time, with the most reliable estimates coming from Zidar, Zwick, and Smith, considered the state-of-the-art in this field.
Allison Schrager, "Conversations with E21: Wojciech Kopczuk on Wealth Taxes," Economics 21, May 12, 2020, https://economics21.org/html/conversations-e21-wojciech-kopczuk-wealth-taxes-3541.html
Normally I wouldn't send this to you but given the upcoming interview with CBS on inequality I though you might be interested. Note he calls the updated Smith/Zidar/Zwick numbers (attached) we looked at “the state of the art estimate” and suspects that inequality in Europe looks like the US but it’s harder to see as we have less transparency into their private firms.
"...Has wealth inequality worsened over time? Yes, it has worsened somewhat. However, there’s a range of estimates in the literature as to how much. The most aggressive ones are biased upward. The state-of-the-art estimate comes from Owen Zidar, Eric Zwick, and Matt Smith—this estimate is what I would point to as the neighborhood of where the truth might be. But the problem with measuring wealth inequality is that observing wealth is hard. Calculating it depends on lots of assumption and imputations, and for this reason any estimate should include clear error bounds or confidence intervals. But my best guess is that inequality has increased….. My suspicion is that the lower levels of observed inequality we see in Europe are due in part to the fact that there are stronger incentives to keep wealth private in Europe, which makes observing it harder. My suspicion is that there is more actual inequality there then what see in the data. Shifting in that direction may make the discourse better, but the economic substance… that’s a different story….”
Ed Comment:Why wouldn't you send this? It provides a pithy summary of the research/thinking on wealth taxes. (although I think, in this case, he makes several mistakes. For example, wouldn't the economy be better served by a wealth tax that was 50% of a low risk rate--1 or 2%, which is, in effect a capital income tax--to a heavy (30%) tax on capital gains that discourage risk-taking? People oppose wealth taxes for the same reason they oppose value added taxes even though they are a more logical way to tax--because they rightly fear them as an additional tax not as an alternative tax. But that's not an economic argument.) (I also think he gets the impact of capital gains tax on unrealized appreciation backward. That should drive people to liquid assets so they can sell assets easily to raise money to pay the taxes. Having to pay annual taxes on appreciated illiquid assets that by their nature cannot and should not be sold is scary. Investors who still wanted to hold illiquid assets would hold a lot more liquid assets to cover the risk. More of one means less of the other. We want to encourage investors to invest in illiquid assets.) Reading an article/interview like this is much easier and faster than reading a complex academic paper. I always envision a collection of linked entries by topic (do we need to add wealth tax as a subsonic?) with a mix of entries that includes easy-to-read summaries like this. I'm reluctant, however to post things like this publicly without "correcting" them, which I don't have time to do carefully with every entry. I would post this with my parenthetic comments.