Tax justice, the new Washington consensus?

Cross-posted from Tax Justice Network.
I had the honour of giving a keynote address at the World Bank/International Monetary Fund annual meetings on 15th October 2017, for an event entitled ‘Technical challenges and solutions for taxing wealth in developing countries’ – which gave the impression that a new Washington consensus on tax justice may be emerging.

My slides and the video, kindly provided by the Bank, are below. Following a fascinating speech from Brooke Harrington of Copenhagen Business School on the role of wealth managers in creating anonymous, un-taxed assets, I ran through the development of the tax justice movement and the rise of the core policy platform (the ABC of tax transparency), highlighting the progress that has been made but also the extent to which lower-income countries remain excluded from the benefits – and what is necessary to enable effective wealth taxation.

The event, and the discussions with a variety of experts and senior figures from the two Bretton Woods institutions (BWIs), made clear just how far both the Bank and the Fund have moved towards tax justice – and also highlighted some key areas where they need to make progress now.

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Debating corporate tax avoidance and incidence

From ‘The Newsmakers’, hosted by Imran Garda, a debate on corporate tax avoidance between me and Tim Worstall from the Adam Smith Institute.

The full piece is linked at TJN.

On the subject of incidence, we each made competing claims about the evidence, as you’d expect. To add a little light to the heat, here’s a TJN round-up of economic research findings on this important question; and some interesting points raised from a different perspective by David Quentin.

Book launch: Inequality, uncounted

In reckoning the numbers of the people of the Commonwealth, or of a State or other part of the Commonwealth, aboriginal natives shall not be counted.

-Commonwealth of Australia Constitution Act 1900, section 127.

Imagine a world of such structural inequality that even the questions of who and what get counted are decided by power. A world in which the “unpeople” at the bottom go uncounted, as does the hidden “unmoney” of those at the very top. Where the unpeople are denied a political voice and access to public services. And the unmoney escapes taxation, regulation, and criminal investigation, allowing corruption and inequality to flourish out of sight.

This is the world we live in. A world of inequality, uncounted.

We may pride ourselves on being the generation of open data, of big data, of transparency and accountability, but the truth is less palatable. We are the generation of the uncounted—and we barely know it. But things may be changing, albeit slowly.


 

The Wicked Problems Collaborative has launched its first book, ‘What do we do about inequality?’ . The text above is the introduction to my chapter, ‘Inequality, Uncounted’ – which is a lighter, more direct telling of the argument made in the paper published last month in Development.

The indefatigable Chris Ostereich (@costrike) led the project, and edited the book, bringing together a really impressive group of contributors (and kickstarter funding). Below is the table of contents – and here’s the link to the book (it’s on Kindle so yes, on Amazon. Sorry).

TABLE of CONTENTS

ACKNOWLEDGEMENTS
DEDICATION
OPENING VOLLEYS
CONTENTS
FIGURES
WPC CONTRIBUTORS ON TWITTER
EDITOR’S NOTE
THE BLIND MEN AND THE ELEPHANT
PREFACE
INTRODUCTION
WHAT DO WE DO ABOUT INEQUALITY?
1. TO ADDRESS INEQUALITY, THINK GLOBAL | Dylan Matthews
2. THE IDEOLOGICAL STRAITJACKET | Sean McElwee
3. WHAT DOES EQUIPOTENTIALITY BRING TO THE TABLE IN TERMS OF EQUALITY? | Michel Bauwens
4. INEQUALITY, UNCOUNTED | Alex Cobham
5. THE INEFFICIENCY OF INEQUALITY | Daniel Altman
6. IS CAPITALISM UNFAIR? | Chris MacDonald
7. THE PROBLEM OF INEQUALITY | Kevin Carson
8. TOWARDS RENOUNCING PERSONAL PRIVATIZATION | Nicholas Archer
9. THE INEQUALITY OF WILDNESS AND THE NECESSITY OF WILDNESS FOR EQUALITY | Megan Hollingsworth
10. THE STICKINESS OF INJUSTICE | Jennifer Reft
11. NOBLE FICTIONS AND SACRED TEXTS Paul Fidalgo
12. THE VOICES THAT ARE NOT YOUR OWN: MAINTAINING CHOICE IN THE AGE OF THE ALGORITHM | John C. Havens
13. THE EMPATHY DEFICIT: WHY THE INEQUALITY CRISIS IS ALSO A CRISIS OF EMPATHY | Robin Cangie
14. BILLIONAIRES WITH DRONES: FROM OLIGARCHY TO NEOMEDIEVALISM | Frank A. Pasquale
15. WHAT SHOULD THE WORLD LEARN FROM THE EXPERIENCE OF INEQUALITY IN LATIN AMERICA? | Patrick Iber
16. OCCUPY SANDY AND THE FUTURE OF SOCIALISM | Sam Knight
17. THE “PLACE OF BIRTH” LOTTERY | David Kaib & Chris Oestereich
18. INEQUALITY AND THE BASIC INCOME GUARANTEE | Scott Santens
19. THE AGE OF INEQUALITY: CAUSES, DISCONTENTS, AND A RADICAL WAY FORWARD | Jason Hickel & Alnoor Ladha
20. TWENTIETH CENTURY SOLUTIONS WON’T WORK FOR TWENTY-FIRST CENTURY INEQUALITY | David O. Atkins
21. THE STATE OF AFFAIRS: HEADING FROM BAD TO WORSE | Adnan Al-Daini
22. THE TRAGEDY OF OUR MIDDLE CLASS | Peter Barnes
23. POST-SCARCITY ECONOMICS: WHY ARE SOME PUNDITS AND ECONOMISTS STILL ENAMORED OF AUSTERITY? | Tom Streithorst
24. INCOME INEQUALITY: WHAT’S WRONG WITH IT, AND WHAT’S NOT | F. Spagnoli
25. TURMOIL & TRANSITION | Harold Jarche
26. KNOWLEDGE, POWER, AND A POTENTIAL SHIFT IN SYSTEMIC INEQUALITY | Jon Husband
27. THE QUESTION OF INEQUALITY: A VIEW FROM INDIA | Akhila Vijayaraghavan
28. WHAT YOU KNOW IS BASED ON WHO YOU KNOW | Deborah Mills-Scofield
29. INEQUALITY IS ABOUT THE POOR, NOT ABOUT THE RICH | Miles Kimball
30. TO TACKLE EXTREME POVERTY, WE MUST TAKE ON EXTREME INEQUALITY | Nick Galasso & Gawain Kripke
31. ADDRESSING WEALTH EQUALITY WITH INVESTING SOLUTIONS FROM NATURE, NURTURE, AND SCIENCE | Rosalinda Sanquiche
32. THE LOGIC OF STUPID POOR PEOPLE: STATUS, POVERTY AND GATEKEEPING | Tressie McMillan Cottom
33. POOR CHOICES | Melonie Fullick
34. THE PARTICIPATION GAP | Devin Stewart
35. GETTING THE FRAME RIGHT | KoAnn Skrzyniarz
36. THE FIRST JOB CREATOR | Adam Kotsko
37. LIFE IN THE TREETOPS: A CHOICE OF CHASTENING PRIVATION OR DEBASING PROSPERITY | Chris Oestereich
NOW WHAT?
IT’S LONELY OUT IN SPACE
PARTING SHOTS

 

Uncounted: Power, inequalities and the post-2015 data revolution

Data: Facts and statistics collected together for reference or analysis

Revolution: A forcible overthrow of a government or social order, in favour of a new system

– Oxford English Dictionary

Just published: a special double issue of the journal Development on African inequalities, including my (open access) guest editorial setting out the thesis of ‘Uncounted’ – how power and inequality are intimately related to who and what go uncounted, from tax evasion in the 1% to the systematic exclusion of women and girls, from the corrupting influence of illicit financial flows to the marginalisation of people living with learning disabilities…

Guest Editorial: Uncounted: Power, inequalities and the post-2015 data revolution

Development (2014) 57(3–4), 320–337. doi:10.1057/dev.2015.28

People and groups go uncounted for reasons of power: those without power are further marginalized by their exclusion from statistics, while elites and criminals resist the counting of their incomes and wealth. As a result, the pattern of counting can both reflect and exacerbate existing inequalities. The global framework set by the Sustainable Development Goals will be more ambitious, in terms of both the counting and the challenging of inequalities, than anything that has gone before. This article explores the likely obstacles, and the unaddressed weaknesses in the agreed framework, and suggests a number of measures to strengthen the eventual challenge to inequalities, including by the promotion of tax justice measures.

Keywords: inequality; data; household surveys; SDGs; tax; uncounted

 

While the whole edition just came out, it is technically the 2014 volume. The majority of the papers are drawn from the Pan-African Conference on Tackling Inequalities in the Context of Structural Transformation held in Accra that year, and include some cracking contributions – not least important papers on gender inequality, sustainability and disabilities, as well as broader pieces on the economics and politics of inequality. Check out the full table of contents.

Power in the darkness, uncounted

Are the 1% eating the planet?

Reposted from WhyGreenEconomy?

Existing analyses of the linkages between inequality and ecological damage have tended to the relatively general. Dario Kenner’s just-published working paper sets out to go further in one particular direction, by focusing on the impact of (over)consumption patterns of the very richest in each society.

You might think that this looks a bit like directing blame before the verdict is in – so I should say that this is not what the paper does. But also: given how many papers have been written about the damage done by the consumption of the poor, one alone looking at the richest won’t tip the balance. In fact, I’d take a bet that there are fewer papers with the current slant than there are studies focused just on the environmental implication of charcoal-burning by people living on lower incomes.

What the paper does above all is to raise a great many questions. First of all, there are questions about data. As anyone who has worked on tax (or read Piketty’s Capital) knows well, the finances of those at the top of the income and wealth distribution have a tendency to go uncounted – not to mention the consumption. And those who work on ecological impact know how much farther there is to go in order to nail a methodology to assess the footprint associated with a given consumption pattern.

The issues are of course multiplied by putting all this together with the aim of assessing the ecological footprint of HNWIs (high net-worth individuals, those with investable wealth of at least $1m), or even settling for the top 10% of households by income.

Nonetheless, it’s interesting to confirm for example that while the top 10% may not consume as disproportionately as they earn, their consumption patterns are nonetheless disproportionate in terms of damaging goods such as transport fuels and meat – and in high-income countries as well as lower-income countries.

Much better data, and substantially more research, is of course needed. But on the grounds that an overconsumption pattern is present, the paper also raises five concerns about the potential difficulty of addressing HNWI behaviour:

  • the competition for conspicuous consumption between (some) HNWIs;
  • that (some) HNWIs may be disconnected from the reality of the ecological crisis;
  • that HNWIs may not respond to sustainable consumption information initiatives;
  • that HNWIs have more resources with which to adapt to and insulate themselves from the impact of climate change; and
  • that environmental taxes may have less effect on HNWIs because they can afford to pay to continue polluting.

The last two go to an important issue which remains for future research: what are the marginal (rather than average) implications for consumption and ecological footprint of redistribution? It is quite possible, indeed plausible, that substantial redistribution may succeed in raising the consumption and footprint of lower-income beneficiaries, while barely affecting HNWIs who absorb any changes through saving behaviour.

This is broadly consistent with the observed higher marginal propensity to consume of lower-income households.  In such a scenario, inequality reduction could well exacerbate (over)consumption. Exacerbating this, if inequality also hinders economic growth as the weight of research now suggests, (over)consumption possibilities at the national level may also be expanded by redistribution.

Would particular progressive policies mitigate or even reverse this effect? [And an aside: To what extent should researchers even continue to seek policy solutions based on marginal economic incentives? If global overconsumption reflects an insurmountable failure to adapt incentives due to our myopic behaviour, are the only sensible solutions to be found in more coercive policy imposition? In which case we should challenge inequality for its own sake, not as an ecological instrument…]

The paper’s parting shot is to note that HNWIs’ investment behaviour, on which even less data seems likely to be readily available, may actually represent the greater part of their footprint.

So, are the 1% eating the planet? We don’t have good enough evidence even to start answering that. What this paper make plain, however, is that the impact of the richest is at least potentially so great that the absence of any serious data on their ecological footprint is a failing that should no longer be ignored.

Ecological-impact-of-the-richest-Dario-Kenner-Why-Green-Economy

Is ‘girl-centred development’ harmful fantasy?

Has the worm finally turned on the promotion of ‘girl-centred development’ in terms of claimed macroeconomic benefits? Daphne Jayasinghe posted on aspects of this yesterday; and the academic literature is pointing the same way.

The Journal of International Development has just published a paper by Cynthia Caron and Shelby Margolin, Rescuing Girls, Investing in Girls: A Critique of Development Fantasies.

The authors analyse “three girl-centred campaigns [and find that they] identify and diagnose girls’ problems and prescribe solutions that not only circumscribe girls’ futures, but are also counterproductive.”

From SciDevNet’s handy summary:

These campaigns do not recognise girls as individuals, each with specific abilities and personal aspirations, but rather assume that all girls want to be educated, raise families and become wage earners,” write Cynthia Caron and Shelby Margolin, two development scholars at Clark University in the United States…

The authors say these programmes support a “development fantasy”, promoting education as a way to “invest in girls” and increase their economic value. The campaigns aim to further economic growth under the guise of girl empowerment, say Caron and Margolin, perpetuating what they see as a “failed development narrative that economic growth inevitably leads to an equitable future for all”.

Has the worm turned? Let’s hope so. The need for a genuine focus on women’s empowerment is far too great for it to be pushed down the channel of fantasy.

Here’s the full abstract:

The girl child increasingly is at the centre of development programming. We draw on Slavoj Žižek’s notion of fantasy to show how and, more importantly, why girl-centred initiatives reproduce the shortcomings of women and gender-focused programmes before them. Through an analysis of three girl-centred campaigns, we illustrate how experts identify and diagnose girls’ problems and prescribe solutions that not only circumscribe girls’ futures, but are also counterproductive. We argue that even as campaigns try to integrate lessons learned from earlier gender and development initiatives, the critical reflection that a Žižekian approach promotes would better enable development actors to reformulate campaigns and fundamental campaign assumptions.

Versions of the same thinking are clearly now influencing some of the campaigns that have been critiqued too – take for example Katrine Marçal’s piece in the 2015 State of the World’s Girls report:

Girls and women are not an untapped economic resource in the world; their work is the invisible structure that keeps societies and economies together.

Things are shifting.

Time for a gendered data revolution

Too many of the big numbers on gender inequality count the cost for GDP – rather than the costs imposed on women. Daphne Jayasinghe, Women’s Rights Policy Adviser at ActionAid UK, calls time. 

Counting gender inequality – which big numbers?

It seems that when it comes to measuring the scale of women’s economic inequality, big numbers really count. Last month the McKinsey Global Institute published its finding that labour market gender inequality represents a $12 tn loss in global GDP. The IMF, the World Economic Forum, the OECD and others have described the “double dividends” of increasing numbers of women in the labour market thereby increasing GDP growth rates .

This analysis makes a striking, headline grabbing argument but what is the purpose? In spite of 1 in 3 women suffering violence and a gender pay gap as high as 30% in some countries, it seems that world leaders and decision makers need more convincing on the value of gender equality.

The fashion therefore is to promote women’s rights in relation to financial returns to the economy. To highlight the growth potential for economies of more women in the labour market, regardless of the exploitative or dangerous conditions they may be working in.

This analysis neglects the fact that neoliberal growth models rely on underpaid women workers as well as a workforce that is fed, clothed and brought up by the invisible cadre of unpaid women carers. Gender inequalities in the home and work place are by no means an inconvenience to global capitalism, they are a precondition for its success.

Counting the costs to women

ActionAid took steps to attach a big number to this debate which challenges this contradiction and measures losses to women themselves. We estimate that women globally could be USD$17 trillion better off each year if their pay and access to jobs were equal to that of men (USD$9 trillion in developing countris). We argue that women’s cheap labour and unpaid work is effectively subsidising the economy by this staggering amount – a result of gender discrimination and women’s economic inequality.

AAid gender gap2

An analysis of this problem that makes a growth potential argument for gender equality neglects the role that economic policies can play in exacerbating inequalities.  An assessment of the benefits of economic justice to women themselves and the economic drivers of inequality is vital.

Analysis of the legal gender barriers to the economy exist in the World Bank’s Women, business and the law project. In contrast, an understanding of the underlying but more pervasive social norms governing gender inequality is constrained by data shortages. For example, less than half of all countries measure unpaid care using time-use surveys.

Talkin bout a revolution

The Sustainable Development Goals agreed last month present an opportunity to improve gender data particularly since addressing discriminatory social norms and institutions has become a new development priority and features strongly across the goal on gender (SDG5) targets. Investments in countries’ capacity to gather data and attention to strong indicators to track the progress of achieving goals are imperative.

Such a gendered data revolution may help move the debate on women’s economic empowerment along from assessing what women could do for the economy towards what they are already doing – often with little recognition or reward.

Ask not what women could do for the economy – ask what they are already doing. 

 

Inquest closed: Connor Sparrowhawk – #JusticeforLB

The inquest of Connor Sparrowhawk (LB) has closed, with a unanimous jury finding: Connor’s death, as a result of drowning following a seizure in the bath while in a Southern Health treatment and assessment unit, was contributed to by neglect.

Much more will be heard of the specific failings on the unit, and in particular of the management of Southern Health. So this is far from the end of the road. But it is an important step towards #JusticeforLB – the extraordinary grassroots campaign that has grown up around Connor’s family, Sara and Richard, GeorgeJulian and many others.

The consistent and persistent uncounting of people living with learning disabilities is a part of, and a reflection of, one of the greatest systemic injustices internationally.

But those statistics, and more often their absence, don’t transmit the full picture. A few of the specifics of Southern Health’s approach, as revealed at the inquest, are worth drawing out.

These are in addition to the documented failures to gather information about Connor, including from his family – such as the history of his epilepsy – and to ensure appropriate training for staff around important aspects of their job – such as epilepsy. [This was a highly costly, specialist unit for people with learning disabilities. One in five people with learning disabilities have epilepsy. One. In five.]      

Withholding information

Repeatedly over the course of events, Southern Health ‘found’ new information that should have been provided to Connor’s family previously. Including sending new information unexpectedly, by courier, in the week before the inquest. This, more than two years after Connor’s death, and after numerous internal and independent reviews.

At best, the implication is a quite exceptional incompetence in the treatment of vital information about people in their care. 

In addition, it was only during the inquest that it came to light that a patient had died on the same unit in 2006 – after, almost unbelievably, an epileptic seizure in the bath.

Connor’s family, between their own professional expertise and the network of support, including a largely pro bono legal team led by a QC, have probably got as close to making the inquest a ‘fair fight’ as anyone ever does. One wonders what happened in the 2006 case. Which leads us to…

Adversarial approach

The UK government’s attempts to deny legal aid to bereaved families – which have been found in breach of human rights law – rest on the idea that such processes are not adversarial.

Connor’s inquest demonstrated beyond any possible doubt the falsity of such a claim. Not only was Southern Health (aggressively) represented, and from the public purse, so too were multiple members of the unit’s then staff, each individually.

The full timeline of @LBinquest is hugely revealing, but the arguments over what directions the coroner could give the jury were especially so. Southern Health’s legal team sought a set of directions to make it less likely the jury could return a verdict on neglect – including by arguing for a dictionary rather than a legal definition, which is an interesting court approach to say the least. The family’s QC, Paul Bowen, told the coroner:

Not adversarial? What happens when the family don’t have a QC to respond?

The last word – for now

In September, the United Nations made the commitment to the Sustainable Development Goals (SDGs), which provide a set of targets for human progress for 2016-2030, and importantly apply to every country of the world.

The SDGs include a requirement to disaggregate main progress indicators according to a range of salient inequalities – including those related to disability. Given that the UK’s prime minister co-chaired the high level panel that first made that proposal, let’s hope that the UK will lead the way by finally delivering on the recommendations of the government’s own inquiry on the need for much better data in relation to people living with learning disabilities. And then the rest…

Over to Connor’s family (and please read the full inquest response from JusticeforLB):

Two years and 7 months ago, our gentle, quirky, hilarious and beyond loved son (brother, grandson, nephew, cousin) was admitted to a short term assessment and treatment unit, STATT, run by Southern Health NHS Foundation Trust. Connor, also known as Laughing Boy or LB, loved buses, Eddie Stobart, watching the Mighty Boosh, lying in the sunshine and eating cake. He was 18 years old.

The care Connor received in the STATT unit was of an unacceptable standard. The introduction of new medication led to increasing seizure activity on the unit, a fact denied by the consultant psychiatrist for reasons only known to her. Connor was allowed to bathe unsupervised and drowned, 107 days later.

Connor’s death was fully preventable. Over the past two weeks we have heard some harrowing accounts of the care provided to Connor. We have also heard some heartfelt apologies and some staff taking responsibility for their actions for which we are grateful. During the inquest, eight legal teams (seven of whom we understand are publicly funded) have examined what happened in minute detail. We have had to fundraise for our legal representation.

Since Connor’s death, Southern Health NHS Foundation Trust have consistently tried to duck responsibility, focusing more on their reputation than the intense pain and distress they caused (and continue to cause us). It has been a long and tortuous battle to get this far and even during the inquest, the Trust continued to disclose new information, including the death of another patient in the same bath in 2006. Families should not have to fight for justice and accountability from the NHS.

We would like to thank everyone who has supported the campaign for JusticeforLB, and hope that the spotlight that has been shone onto the careless and inhumane treatment of learning disabled people leads to actual (and not just relentlessly talked about) change. It is too late for our beautiful boy but the treatment of learning disabled people more widely should be a matter of national concern.

How could you not be excited by the Palma?

This is a joint post with Andy Sumner and Luke Schlogl.

Global income inequality guru Branko Milanovic has confessed that he is “still not excited by the Palma“.

Since Branko is not only ace but also one of the few people that you might actually expect to get excited by an income inequality measure, it seems worth trying to address this sorry state of affairs.

The Palma, proposed by Cobham and Sumner, is the ratio of the income share of the top 10%, to the income share of the bottom 40%. The reason for choosing this particular ratio, and for the name, is Gabriel Palma’s finding that those in the middle (deciles 5-9) capture approximately 50% of national income share, even in countries at quite different per capita income levels.

Branko’s post draws on a paper by Alice Krozer which argues that the stable middle of the distribution is actually a little larger, and so the ratio of the top 5% to the bottom 40% (Palma v.2) should be used instead.

Branko’s main point is this:

Palma’s logic is, as we have seen, to find parts of the distribution that, in terms of their shares,  do not change regardless of the changes elsewhere, and to build a measure of inequality around these immovable parts.  But these immobile chunks are no more immobile than Pareto’s top shares were. What is immobile may change between the countries, or across time. We see this it in Krozer’s own paper:  there is no superior argument to assume that only the “central five deciles”  are constant than to assume that “the central 55 percentiles” are constant.

With Palma we are thus building a general measure of inequality on the quicksand of what seems today more or less an empirical regularity.  (Note that even when the regularity holds the five central deciles do not take exactly 50% of total income, but approximately 50%.)

But if  the distribution changes and the middle loses while the bottom gains, and it turns out, for examples, that the deciles’ 4-7 shares are suddenly fixed, should we change our measure of inequality to look at the ratio between the top three deciles and the bottom three? Or if growth of incomes is concentrated in the top 1% or the top 5%, should be again redefine the Palma formula as Krozer has done? An infinite number of such permutations is possible, and an endless dispute will open up regarding what deciles’ shares are fixed and what not. The virtue of Krozer’s paper, despite what I think was her original intention,  is to highlight the fragility of the empirical nature of the index and thus its basic arbitrariness.

Branko also reiterates two points that we have highlighted in respect of the typical technical axioms for inequality measures, which is that the Palma is insensitive to transfers within any of the three ‘chunks’ (the top 10%, middle 50% or bottom 40%).

Finally, he adds that “its decomposition properties—what is the Palma of two distributions whose Palmas and mean incomes are known—cannot, I think, be determined in general.”

We discuss these points in a little detail, including as they apply to other measures, in the CGD working paper introducing the Palma. So let’s focus here on the main charge: that the Palma relies on an empirical regularity which may change.

Palma D5-D9 change distributionAnd… it’s true. The reason we choose this particular ratio is indeed because of the regularity that Gabriel Palma identified, and which further research has shown to hold over the range of available national income distribution data. Here, for example, is a histogram showing percentage point changes in the national income share of deciles 5-9. It’s centred closely around zero (ok, the median is slightly negative at -0.23).

But as anyone who enjoyed Scotland’s football team qualifying for five consecutive World Cups from 1974 can testify, past performance is no guide to the future.

 [Press play for consolation.]

So the Palma might be the right measure for today; but what if the empirical regularity were to cease to hold in the future?

Gabriel’s main argument, of course, is about the driver of inequality: It’s the share of the rich, dude. And the data back this up too, as the correlations between the Palma and ratios of the top decile to other bits of the distribution confirm.

Palma correlation with other D10 ratios

But let’s say that the future does hold a sufficiently dramatic change in the relative stability of the deciles 5-9. What would we be left with?

The Palma as a measure of income inequality, which:

  1. remains meaningful;
  2. pays insufficient attention to a part of the distribution that we may care about; and
  3. is explicit about doing so.

Just for fun, let’s consider the Gini on the same basis. The Gini is by construction oversensitive to the middle, and less sensitive to the tails. As such, it is an inequality measure which:

  1. remains meaningful;
  2. pays insufficient attention to a part of the distribution that we do care about; and
  3. is not explicit about doing so.

Note that this is true today, not in some imagined future. In fact, we would suggest that most people using the Gini do not realise that it is less sensitive to the tails; nor that it becomes increasingly less sensitive at higher levels of inequality.

As such, use of the Gini can hide the true extent of inequality – inadvertently or otherwise.

But we are guilty here of what Scottish football fans refer to as whataboutery: the defence of one (possibly bad) thing, by reference to a different (definitely bad) thing.

Instead, we should recognise there are weaknesses to any single measure of inequality. As Tony Atkinson, the grandfather of all modern economic analysis of inequality wrote in 1970, all measures reflect a subjective view – the difference is whether this is made explicit. And the class of measures Atkinson himself proposed in response are a technically outstanding response to the problem, only limited by their complexity from easy use for more popular communications.

The solution, such as it is, is to avoid the tyranny of single measures and to insist instead upon a breadth of measures. As Mike Isaacson put it in responding to Branko’s post:

My major point of contention with Milanovic here is not so much on the superiority of one index over the other, but rather the implication that we should invest ourselves in finding a superior index for inequality. Indices, merely by virtue of distilling the data from an entire economy down to one number, are inherently going to be problematic in terms of universal application. The choice of index (or indices if you’re into that whole “robustness” thing) should be guided by the data you have and the questions you intend to answer.

While the Palma versus Gini comparison may well favour the Palma, ultimately that’s the wrong question to address. We should ask ‘how best to measure’ (in a given context), not which (single) measure to use.

The Palma is exciting, if that’s your sort of thing, because it sheds light on the major aspect of inequality that the Gini quietly conceals – but not because there should be a tyranny of the Palma to replace the tyranny of the Gini.

And if that’s not exciting enough, here’s a Scottish defender opening the scoring against Brazil with a toepoke screamer from 20 yards. Wha’s like us?

Should tax targets for post-2015 be rejected?

In a strident blog at the International Centre for Tax and Development, Mick Moore, Nora Lustig, Richard Bird, Nancy Birdsall, Odd-Helge Fjeldstad, Richard Manning and Wilson Prichard have called for the rejection of post-2015 tax targets. (Full disclosure – I work with the ICTD, including on the Government Revenue Dataset.)

Seven leading thinkers on development and tax can’t be wrong – can they?

The case against

The  Zero Draft of the Outcome Document suggests that “… Countries with government revenue below 20 per cent of GDP agree to progressively increase tax revenues, with the aim of halving the gap towards 20 per cent by 2025.…”

It would be a great mistake to encourage quantitative tax targeting of any kind.  It would be like reintroducing the kind of production targets that did so much damage in the former Soviet Union.

This position rests on three arguments:

First, it is already a significant problem in developing countries that most tax agencies are already subject to a single performance measure: the extent to which they achieve the cash targets for revenue raising set by ministries of finance…

Second, increasing revenue collection will likely in some countries lead to an increase in poverty… It is not uncommon that the net effect of all governments taxing and spending is to leave the poor worse off…

The third objection is that, in many cases, the figures used to assess performance in relation to these targets may be almost meaningless.

Background

I’ve posted on this before, in response to a request on what would be the best post-2015 tax targets (taking for granted that there would be some kind of a tax target).

The limitations of the tax/GDP ratio should give us pause, and so it is useful to consider alternative denominators in particular – not least the tax/total revenues ratio, which is associated with improvements in governance. This was the conclusion:

[F]or all its issues, the tax/GDP ratio is probably worth sticking with; while the tax/total revenues ratio is an important complement.

tax ratio comparison table

But maybe I should have been more cautious about having any target at all…

A useful intervention

There is a legitimate debate about whether there are too many goals and targets in the proposed SDGs (not to be confused with the pretty feeble argument sometimes heard that we should ‘stick with the Millennium Development Goals (MDGs)’, and ignore difficult things like inequality).

There has been a tendency to think that any important issue needs a target – and it may not be true.

Not all important issues have a clear consensus on the right value to target. Even a pure ‘bad’ like infant mortality may more usefully have a positive, rather than a zero target. So it’s possible that tax – reflecting the complexities of state-citizen relations as well as economic structure – simply doesn’t lend itself to a target.

But: the individual elements of the critique seem overstated, so it becomes hard to support the authors’ stark conclusions.

To recap, they argue that a tax target is a bad idea because

  1. it’s a blunt tool that risks the wrong prioritisation;
  2. tax may be bad for poverty, so more of it may be worse; and
  3. we measure both components of the proposed tax/GDP target too badly.

Criticism 1. Too blunt?

The first criticism is that the tax/GDP target is too blunt. Tax authorities can already face too much pressure around a single measure (cash collections). Might tax authorities be put under such pressure to reach a tax/GDP target that they undermined broader progress on e.g. taxpayer trust, revenue diversification or stability?

Diversifying the performance criteria for tax collectors is vital. Some developing countries are making progress. Any kind of international blessing for archaic practices would be a mistake – and perverse in terms of the Sustainable Development Goals.

This is clearly a legitimate concern. But it’s hard to feel comfortable with it being used to draw such a stark, final conclusion as that there should be no target at all.

The whole SDG process requires finding the best individual targets to reflect political priority in important areas. Almost by definition, these cannot reflect the perfect, broader dynamics in any of those areas. And this is not their role.

Would a tax/GDP target really be ‘archaic’, and ‘perverse’?

As the authors note, there is currently excess pressure on cash collection targets. Could one international target (among many) overtake this existing domestic political pressure? If it did, would a tax/GDP target (for which there is some evidence of association with development) be worse than a cash collection pressure (for which there is none)?

And what if the target was instead on tax/total revenue – which tends to support accountability over time? Or what if we included additional targets (as I suggested), or nested indicators, that reflected some of the other aspects?

Criticism 2. Bad for poverty?

This criticism rests on Nora Lustig’s important findings from the valuable Commitment to Equity (CEQ) project, namely that some countries’ tax and transfer systems leave people living in poverty worse off.

This is clearly of great importance. If more tax led to more poverty, a (positive) tax target would be obscene.

But I don’t think the authors of this post hold that view – in fact, quite the reverse. As Mick wrote earlier this year: “The developmental benefits of governments taxing citizens, even for modest sums, are often disregarded.”

And nor does the evidence support a broad pattern of taxation worsening poverty.

The problem that the blog authors highlight is that “the number of poor people who are made poorer through the taxing and spending activities of governments exceeds the number who actually benefit”, in Armenia, Bolivia, Brazil, El Salvador, Ethiopia and Guatemala.

I couldn’t see the claim stated as such in the CEQ paper linked, so it’s a little hard to be sure. But what it does show is the pattern of net receivers and net payers in figure 6:

CEQ fig6 net payersNow where the $2.50 absolute poverty line falls above the blue/red changeover in the cases mentioned, it implies that some of the people below that line are absolute losers from the tax and expenditure system. (Directly only – the analysis doesn’t look at broader benefits of taxation, such as improved long-term government accountability, which may be of particular benefit to those living in poverty, as opposed to elite insiders.)

The CEQ analysis also finds that expenditures in developing countries are broadly progressive, and becoming more so. What we can tell from figure 6 is that in all cases  examined, the poorest appear to do best (that is, net receivers are always at lower income levels than net payers). Where there are high levels of absolute poverty, some systems are insufficiently progressive to ensure that the better-off of those living below the poverty line are also net winners.

From this, the blog authors conclude:

The big risk in setting tax targets is that governments will then strive to reach them – and in the process impoverish poor people even further.

Clearly, there is risk that governments raise (more) tax without making it (more) progressive. But is this really ‘the big risk’?

Consider draft SDG target 10.1:

by 2030 progressively achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average

Indicators under discussion for this include pre- and post-tax and transfer income shares of the top 10% and bottom 40% (yay Palma).

It seems unlikely that a tax/GDP target would take precedent over 10.1, such that regressive taxation is pursued in order to hit the tax target. And on balance, you’d expect the progressive of taxes and transfers to improve (or at least, not to deteriorate) with a rising tax/GDP ratio.

So again, I think the authors raise an important point to think about, but then draw such a stark conclusion that it’s hard to support.

Criticism 3. Too badly measured

The third criticism made is that GDP in particular is too badly measured, and tax too open to manipulation, for tax/GDP to provide a decent basis for target. (Per my earlier piece, the denominator is also not in policymakers’ control.)

The authors note the extent of GDP mismeasurement, and what I hope is a uniquely egregious example of tax timing manipulation, as well as the instability associated with e.g. resource revenue volatility.

Accounting and reporting games are already being played around tax collection targets. If the international community were to popularise the idea that an improved ratio of tax collection to GDP is intrinsically a good thing, we can expect more such games.

This seems to be the strongest, and also the least over-stated, criticism.

Here’s the thing though: substitute other words for ‘tax collection’ in the quote, and it still makes sense.

The measurement of a great many aspects of the MDGs – never mind the SDGs – is open to manipulation. Tying this to public accountability for performance is, yes, likely to result in more manipulation (see e.g. the contrasting measures of educational enrolment in Kenya; or consider how the much-celebrated dollar-a-day poverty target was successively re-engineered to allow increases of hundreds of millions of people in the target numbers living in extreme poverty).

In addition, there are a great many proposed SDG targets for which data is – currently – not good enough. I hope there is also a general consensus that this time, the targets should be chosen on merit and the measurement then addressed; rather than allowing the existence of data to dictate what targets are set, as with the MDGs.

So the criticism is fair, but it doesn’t follow that this is a reason not to have a target. (If it were such a reason, the entire SDGs project – and the MDGs before them – would be open to question…)

Long story short(ish)

The intervention from the seven authors of the ICTD blog raises a set of important questions, and these merit further attention in the design of a post-2015 tax target. As they suggest, tax should almost certainly be better and more diversely measured, as well as more progressive.

What the intervention does not, however, provide, is substantial support for the conclusion that introducing a tax target would be a mistake.

Like the MDGs, the SDG targets will not be universally pursued – never mind achieved. What they will do, if successful, is establish important norms that will in turn drive broad progress.

There’s no question that the MDG model was seriously flawed in its reliance on aid as the implicit source of finance. Flawed, because aid could only ever have formed a small part of the solution; and flawed because of the politics (note that progress only really got going in sub-Saharan Africa, for example, with the mid-2000s adoption of MDG targets into national planning processes – where they began to exert substantial influence on budget decisions).

We can, and should, design better tax targets. But domestic taxation must be central to Financing for Development in post-2015.

Dropping tax targets completely would be, by far, the bigger mistake.