Coronavirus-hit governments should tax the rich as tax cuts do not spur growth: Study

The research paper concluded that tax cuts for the richest members of society generate greater inequality and do not stimulate economic growth.
The research paper concluded that tax cuts for the richest members of society generate greater inequality and do not stimulate economic growth.PHOTO: AFP

LONDON (AFP) - Cash-strapped nations seeking to restore virus-ravaged finances should not be "unduly worried" about economic fallout from taxing the rich, a study found this week.

The research paper, penned by the London School of Economics (LSE) and King's College London (KCL), concluded that tax cuts for the richest members of society generate greater inequality and do not stimulate economic growth.

"Our results might be welcome news for governments as they seek to repair the public finances after the Covid-19 crisis, as they imply that they should not be unduly concerned about the economic consequences of higher taxes on the rich," said KCL public policy lecturer Julian Limberg.

The research appeared to pour cold water on so-called "trickle-down economics" policies that right-wing governments insist help to redistribute wealth from the top down.

The paper, published on Wednesday (Dec 16), underscored that taxation on the rich has been falling in developed nations over the last 50 years - particularly in the 1980s.

"Our research shows that the economic case for keeping taxes on the rich low is weak," said Dr David Hope, who is a visiting fellow at the LSE and a political lecturer at KCL.

"Major tax cuts for the rich since the 1980s have increased income inequality, with all the problems that brings, without any offsetting gains in economic performance."

The report analysed five decades of data from 18 advanced nations in the Organisation for Economic Cooperation and Development (OECD) to calibrate the impact of tax giveaways for the wealthiest.

"We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1 per cent share of pre-tax national income," the study said.

"In contrast, such reforms do not have any significant effect on economic growth and unemployment."