GPP 501 Microeconomic Analysis for Public Policy Fall 2017

Transcription

1 GPP 501 Microeconomic Analysis for Public Policy Fall 2017 Given by Kevin Milligan Vancouver School of Economics University of British Columbia Lecture Sept 20th: Inequality and Justice MPPG 501: Sept 20th 1 of 24

2 Agenda for today: 1. Discussion of Green, Riddell, and St-Hilaire 2. Four Canadian Inequality Trends. 3. Role of Government MPPG 501: Sept 20th 2 of 24

3 Green, Riddell, and St-Hilaire (2016) MPPG 501: Sept 20th 3 of 24

4 Agenda for today: 1. Discussion of Green, Riddell, and St-Hilaire 2. Four Canadian Inequality Trends. 3. Role of Government MPPG 501: Sept 20th 4 of 24

5 Inequality in Canada: Four trends Two of these trends suggest: this isn t a problem i) Median incomes are growing ii) Low-income levels are improving but digging deeper reveals some cause for concern. iii) Earnings stagnation iv) Income concentration at top Similar trends happening in some other advanced countries. (See Atkinson, Piketty, and Saez 2011 JEL) For Canada inequality trends, see Fortin Green Lemieux Milligan Riddell (2012) or Corak (2016). MPPG 501: Sept 20th 5 of 24

6 Canadian Trend #1: Median incomes moving up MPPG 501: Sept 20th 6 of 24

7 Canadian Trend #2: Low income proportion not getting worse MPPG 501: Sept 20th 7 of 24

8 Canadian Trend #3: Earnings polarization hitting median males MPPG 501: Sept 20th 8 of 24

9 Role of the resource boom. MPPG 501: Sept 20th 9 of 24

10 Canadian Trend #4: Income concentration at the top What is the top 1%? Income (2014) you need to be in the top Group Income needed Percentile Top 0.01 percent 2,720,200 P99.99 Top 0.1 percent 725,900 P99.9 Top 1 percent 227,100 P99 Top 5 percent 118,500 P95 Top 10 percent 91,400 P90 Top 50 percent 32,300 P50 Total individual income. Source: CANSIM Income shares: How much of the total pie of income goes to people in each of these groups? MPPG 501: Sept 20th 10 of 24

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15 Veall (2012): Big change in composition of top incomes Very big swing in wage earners vs capital earners in top 0.01%. Also note that proportion of wage income is ~same in top 0.01% and top 1% in o It is supermanagers driving the concentration trend; not capital income. MPPG 501: Sept 20th 15 of 24

16 FGLMR (2012): Characteristics of the top 1% in 2005 MPPG 501: Sept 20th 16 of 24

17 Agenda for today: 1. Discussion of Green, Riddell, and St-Hilaire 2. Four Canadian Inequality Trends. 3. Role of Government GPP501: Lecture Sept of 24

18 Should government undo the market income distribution? What should government do? Nothing (aka anarchy) Enforce contracts (aka the night watchman state ) Provide public goods Social Insurance Redistribution In Canada, the federal government spends ~45% of its budget on public goods (generously defined). ~55% of its budget on transfers to individuals (31%) / other governments (24%). GPP501: Lecture Sept of 24

19 Concepts of fairness Procedural Justice: what matters is a fair process. Consequential Justice: what matters is a fair outcome. Sen (1995 AER): You can t separate these two concepts. If fair procedure led to horrific outcome, we likely wouldn t like that. If a fantastic outcome were only available through something horrible like torture or death, we might not like that. Amartya Sen GPP501: Lecture Sept of 24

20 Perceptions of fairness: Alesina and Angeletos (2005 AER) GPP501: Lecture Sept of 24

21 Perceptions of fairness: Luttmer and Singhal (2011 AEJ-Policy) GPP501: Lecture Sept of 24

22 The Rawls (1971) experiment John Rawls A Theory of Justice (1971) A book about a social contract. Imagine we chose how much redistribution there would be in society before we got to see our own position in the distribution. In Rawls s language, imagine we are behind a veil of ignorance in the original position. Rawls deduced that in this case, we should choose maxi-min, which maximizes the outcomes of those at the bottom. GPP501: Lecture Sept of 24

23 Rawls s critics Nozick Anarchy, State, and Utopia (1974) offers point-by-point rebuttal along libertarian lines. Incomes belong to individuals; not society. Society has no right to redistribute because society doesn t own anything. If outcomes are unequal, that doesn t matter. What matters is the process that generates the outcomes. If process is fair, then outcomes are fair. (i.e. procedural justice) Also: How much do we know behind veil of ignorance? Our abilities? The distribution of abilities? The distribution of outcomes? How much is luck how much is hard work? GPP501: Lecture Sept of 24

24 For next time GPP501: Lecture Sept of 24