Redistributing income and wealth

One hundred and fifty years ago, we were living in societies that were incredibly unequal in the distribution of resources, with the top 10% of richest people holding an extremely large fraction of overall resources. What has happened over the course of the 20th century is a massive compression of inequality and access to a higher level of well-being for a large fraction of the population in these countries. The problem is that it's now been around 40 or 50 years since we last saw a reversal in the trend. There has been an increase in the level of inequality, both in terms of income and wealth in a lot of countries, in particular English speaking countries. But European countries such as France or Germany or Italy are also experiencing this reversal in trend.

The second really important dimension in terms of understanding the evolution of inequality today is what happens to inheritance versus self-made wealth, if you wish. What's really interesting when it comes to understanding wealth inequality is to understand to what extent that inequality is due to people being very different in terms of their ability to save or to generate money out of their entrepreneurial activities, or to the contrary, whether it's due to the luck of being born in a wealthy family or not.

Historically inherited wealth has been really central to understand wealth and wealth inequality. But throughout the 20th century, due to a series of historical events, the share of total wealth that was inherited declined drastically. That is due to shocks such as wars or hyperinflation, events that have wiped out a massive amount of assets out of the surface of this world. So we entered the second half of the 20th century in a somewhat surprising situation where inherited wealth for the first time in history was less important in determining who was wealthy and who was not. The problem is that this little sequence in history is about to close. We're now seeing a very violent return of the share of inherited wealth in total wealth. And that creates a host of questions with respect to opportunities, equality of opportunities, and what policies should do about it.

The first tool that you have is actually the taxation of business profits. Because again, at the very, very top of the wealth distribution, you have people whose wealth is essentially constituted of business assets, of privately held businesses, of privately held firms. Therefore, a lot of the taxes that these people eventually pay on the resources that they have access to is through the form of taxation of the profits of these firms. The second bit is what happens in terms of the taxation of inheritance. Taxation of inheritance is important because again, a lot of this wealth at the very, very top continues to be inherited wealth. The third and really fundamental way as well, in which you can tax what happens at the very, very top of the income and wealth distribution is through the taxation of the stock of capital, the stock of assets as well as the income that they generate.

Then what can we do? One is all the policies that have been put in place to minimize the role that tax havens can play in the global offshoring trend. And the second thing is by setting a minimum level of taxation of global profits, irrespective of where these profits are booked. These movements are really important, but let's face it, they haven't gone far enough. The second thing is inheritances. How can we reshape our inheritance tax policies in a way that would make it less easy for extremely wealthy people to transmit their wealth without ever paying taxes on the assets that they own and the assets that they've accumulated? There is a lot that needs to be done in order to make sure that our inheritance tax systems are not shrunk the way they've been over the past 30 to 40 years. The third pillar is the role of taxing income and wealth during the life of the people who own them. There are many ways in which you can have assets that generate a lot of income for you, but that you're never going to fully realize, and therefore that you're never going to have to declare as income to the tax administration.

What we've discovered here is really important. It's that, yes, these considerations matter, but they are quantitatively small, even for people who are super mobile, like football players. When you look at other occupations that have much less integrated labour markets then these considerations are very small. Overall, top earners have a certain responsiveness to taxes, but definitely not large enough to justify that we cannot increase the level of redistribution. If you take countries like Sweden or Denmark, where wealth taxes used to exist but have been abolished, the responsiveness of the extremely wealthy people to taxation does exist, but it's quantitatively much smaller compared to those who generate a lot of income out of their labor. The general fear that if we have wealth taxes, all the extremely wealthy people are going to leave is actually really overblown.

While these might be potential important concerns, the one thing that is important is to document precisely quantitatively the magnitude of these effects. When you do that work, what's really striking is how much smaller the constraints that they impose on the optimal design of our tax system is. The biggest misconception is that we are powerless. Much to the contrary, we are much more equipped to understand in which ways we have much more freedom to create a fairer and more equitable tax system by taking into account all these different effects. All of this paints a world that is much more full of possibilities than a lot of people believe.

Editor’s note: This article has been faithfully transcribed from the original interview filmed with the author, and carefully edited and proofread. Edit date: 2026