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Defending the One Percent

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  • N. Gregory Mankiw

Abstract

Imagine a society with perfect economic equality. Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. Think of the entrepreneur as Steve Jobs as he develops the iPod, J. K. Rowling as she writes her Harry Potter books, or Steven Spielberg as he directs his blockbuster movies. The new product makes the entrepreneur much richer than everyone else. How should the entrepreneurial disturbance in this formerly egalitarian outcome alter public policy? Should public policy remain the same, because the situation was initially acceptable and the entrepreneur improved it for everyone? Or should government policymakers deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally? In my view, this thought experiment captures, in an extreme and stylized way, what has happened to US society over the past several decades. Since the 1970s, average incomes have grown, but the growth has not been uniform across the income distribution. The incomes at the top, especially in the top 1 percent, have grown much faster than average. These high earners have made significant economic contributions, but they have also reaped large gains. The question for public policy is what, if anything, to do about it.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.3.21
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 27 (2013)
Issue (Month): 3 (Summer)
Pages: 21-34

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Handle: RePEc:aea:jecper:v:27:y:2013:i:3:p:21-34

Note: DOI: 10.1257/jep.27.3.21
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  1. Henrik CRONQVIST & Rüdiger FAHLENBRACH, . "CEO Contract Design: How Do Strong Principals Do It?," Swiss Finance Institute Research Paper Series 11-14, Swiss Finance Institute.
  2. Steven N. Kaplan, 2012. "Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges," NBER Working Papers 18395, National Bureau of Economic Research, Inc.
  3. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  4. Thurow, Lester C, 1971. "The Income Distribution as a Pure Public Good," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 327-36, May.
  5. Alberto Alesina & Andrea Ichino & Loukas Karabarbounis, 2011. "Gender-Based Taxation and the Division of Family Chores," American Economic Journal: Economic Policy, American Economic Association, vol. 3(2), pages 1-40, May.
  6. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
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  1. Defending the one percent
    by ? in Tiempo Económico on 2014-03-25 19:52:00
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Cited by:
  1. Sonja Jovicic & Ronald Schettkat, 2013. "Does Inequality Promote Employment? An International Comparison," Schumpeter Discussion Papers SDP13009, Universitätsbibliothek Wuppertal, University Library.

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