Sunday, April 2, 2017

Economic growth in the US: A tale of two countries

The rise of economic inequality is one of the most hotly debated issues today in the US (Furman 2016) and indeed in the world. Yet economists and policymakers alike face important limitations when trying to measure and understand the rise of inequality.

One major problem is the disconnect between macroeconomics and the study of economic inequality. Macroeconomics relies on national accounts data to study the growth of national income, while the study of inequality relies on individual or household income, survey, and tax data. Ideally all three sets of data should be consistent, but they are not. The total flow of income reported by households in survey or tax data adds up to barely 60% of the national income recorded in the national accounts, with this gap increasing over the past several decades.1

This disconnect between the different data sets makes it hard to address important economic and policy questions, such as:

What fraction of economic growth accrues to those in the bottom 50%, the middle 40%, and the top 10% of the income distribution?
What part of the rise in inequality is due to changes in the share of national income that goes to workers (labour income) and owners (capital income) versus changes in how these labour and capital incomes are distributed among individuals?

http://voxeu.org/article/economic-growth-us-tale-two-countries

1 comment:

Diana Sparks said...

Thanks for the useful article. Fortunately, now the economic situation is much better and we can see the economic growth and prosperity. However, I think that the tax system still needs some improvements. It’s necessary to make the system fair. In some occasions individuals with low income have to pay high taxes but how people using easy service for emergency loan can do that? Thus, it’s important to make tax system for flexible so everybody will pay a fair share.