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What links the IMF and Robin Hood when it comes to taxing the wealthy?

12/10/2017 Tristan Blythe, Group Editor

Since the days of Robin Hood one solution to inequality within society has been to ‘take from the rich to give to the poor.’

While most would accept the inequality has increased in recent years, not all believe that higher taxation of the wealthy is the answer. It is suggested that if income taxes for the highest earners reach a certain level they will move out of the country in question to a more competitive tax regime and out of the reach of that nation’s taxman.

So who has spoken up in favour of the Robin Hood approach? Step forward none other than Vitor Gaspar and his band of merry men and women, also known as the International Monetary Fund (IMF).

Mr Gapar, who is director of the fiscal affairs department of the IMF, has commented at the launch of the IMF’s latest Fiscal Monitor publication.

He pointed that IMF data shows that while inequality between nations has decreased, primarily as a result of “catching up across countries”, inequality within nations has increased.

It is, he said, “important to emphasize that inequality has increased in the largest countries in the world: China, India and the United States.”

The data shows that “over the past three decades inequality has increased in about half of the countries around the world, particularly in advanced economies.”

A solution clearly needs to be found to this problem. Take away any moral issues and inequality is still clearly not good for society and can lead to unrest and political upheaval.

This raises the question as to whether taxing the rich is the right answer or if it does lead to problems in itself?

According to Mr Gapar and the IMF, the danger of taxing the rich to create a redistribution of wealth may have been overplayed.

Over the past three decades, “tax progressivity” has declined, the IMF data shows. “This decline is consistent with the drop in top personal income tax rates in OECD countries from an average of 62 percent in 1981 to 35 percent in 2015,” Mr Gapar said.

He added that “empirical results suggest that it is possible to increase the degree of tax progressivity while preserving growth, at least for levels of progressivity that are not excessive.”

Indeed in low-income and developing countries he argued that “developing tax capacity is critical for increasing the distributive role of fiscal policy while ensuring fiscal sustainability.”

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