What to do about income inequality

Abstract

The first question dealt with in the paper is whether it’s worth worrying about unequal income distribution. The supposed long run constant factor shares, the positive effects of inequality and the greater importance of absolute level of income compared to its unequal distribution seems to deny this need. On the contrary, economic, social and fairness reasons support the need to care about unequal income distribution. Therefore, measures should be taken about income inequality, and a distinction has to be made between measures to prevent excessive inequality from happening and measures to redistribute income once inequality has taken place. In order to envisage appropriate measures it is necessary to find out what causes the growing trend of increasing inequality in income distribution: economic and institutional factors are taken into consideration. Consequently a range of measures are suggested, which go from reducing the “degree of monopoly” in the economy to regulating the financial system, from improving the system of collective bargaining to curbing the “predatory behaviour” of the executives. Redistribution measures are also discussed, with a warning about the risk of causing with them more harm than the inequality they are supposed to counteract.