Monday, 26 May 2014

Thomas Piketty in The Financial Times and Tax Transparency

Nat O'Connor: It's an old stereotype that you can tell who are the serious left-wing economists by whether or not they read The Financial Times. The point being that only those who understand what 'the other side' is saying can hope to critique it. Well, this works both ways and it is no surprise that the FT's economics editor, Chris Giles, has been reading Thomas Piketty's Capitalism in the Twenty-First Century and has had a poke at it.

Specifically, Giles criticises the data on income and wealth inequality upon which Piketty's critique of capitalism as we know it is based.

Note: if you are not a subscriber, you need to sign up for a free FT account, which allows you to read a small number of articles per month.

Giles's critique is here (and also here) with a much longer blog version too that goes into some detail.

However, the strength of Piketty's work is precisely the level of detail that he has amassed and made publicly available online. Piketty and colleagues have built up The World Top Incomes Database from tax data from numerous countries, and they continue to refine and expand this data source - with the aim of including more countries and including new sections on wealth inequality alongside income.

Piketty himself dismissed the FT critique, in a letter published by the FT here. And other academic economists have supported him (Washington Post).

This is not to say that Piketty's data is perfect. However, as others have said, there is plenty of alternative supporting data that reinforces the central tenet that economic inequality has been rising inexorably in recent decades. What should be noted is that it took a number of serious academics - including Piketty - several years of work to collate and organise public data on taxation that arguably should have been readily available in machine-readable formats for public consultation.

In Norway, tax returns are publicly available online (in Norwegian); including the names and addresses of people alongside their income, wealth and how much tax they paid. In Sweden, there is a similar system, although you have to apply to see the data and the person concerned is notified who has sought to check their records. This openness about distribution in the economy allows policymakers in those countries to respond more quickly and accurately to ensure balanced development and shared prosperity.

Culturally, many people in Ireland may not be ready for that level of transparency and honest discussion about money. But there is an onus on Revenue and other public bodies to publish clear, accurate information about income and wealth in as much detail as possible; even if anonymised. Only this way can citizens can see who is winning and losing from the current set of laws and practices that shape our economy and tax system, and make up their own minds whether the growth in economic inequality is an acceptable price to pay to maintain our current economic model.

For the curious, Revenue do publish annual statistical reports, and the latest income distribution report gives useful data for 2010. However, both the format (PDF) and the time-gap between the latest data and now makes these reports less useful than they could be. Some of this data is discussed in more detail in TASC's recent report: A Defence of Taxation


Nat O`Connor said...

Postscript: The Irish Times had an article commenting on this too:

They are wrong to claim that the core issue involves "abstruse concepts". While there are different measurements used, the core issues are very simply how much income and wealth does everyone has? And is it equitable?

Nat O`Connor said...

See also