Covid -19 and inequality
lead to ‘ unnecessary unemployment and business failure ’ , 33 not the best policy when attempting to reverse inequalities).
A Warwick paper 34 estimates that an additional £20 billion a year in taxation revenue could be raised were everyone with an income of above £100,000 to pay the current income tax rates on all of their earnings, including capital gains and other forms of investment income. Though there is doubt over whether substantial increases in taxes on earnings is a logical policy 35 in the world’s most finance - dominated economy, it is clear that more taxation revenue needs to be raised some way or another. 36 However, it is important to remember when writing the new tax laws that capital and high-skilled labour are internationally mobile and that too high taxes reduce incentives for hard work and entrepreneurship. 37 In the short-run, policy should focus on selectively retaining employees in their current jobs by giving them and their employers more flexibility. These policies serve to simultaneously protect small firms from closing and low-income workers from unemployment. Insights can be gained from observing Germany’s policy responses to the 2008 crisis. ‘Short -time- work’ allowed an employee to work for fewer hours, with the government paying a decided portion of their lost income due to the shorter working hours (it was 67% in Germany). 38 Furthermore, a ‘working times account’ allowed e mployees toworkmore or less hours in any givenweek as long as their total weekly hours average out to an agreed amount, reducing the incentive for employers to lay off their workers. 39 These would serve to reduce substantial layoffs that would have otherwise just been a feature of a temporary shock, 40 all while helping businesses maintain their firm-specific capital, increasing their probability of survival. 41
Long-term policies should focus on the quality of jobs in the economy. To do so, workers should be supported in acquiring new skills, a policy that would reduce both inequality of opportunity 42 and of income, as workers’ skills and salaries have a strong positive correlation (figure 4). A great way to do
33 Agyemang, Emma. ‘UK review of capital gains tax heralds future rises, experts say.’ The Financial Times , July 14 th , 2020, https://www.ft.com/content/4ab1e675-bae4-4ff1-a0af-4b678a415ea3?shareType=nongift. 34 Arun Advani, and Andy Summers. ‘Howmuch tax do the rich really pay? New evidence from tax microdata in the UK.’ Economic and Social Research Council, CAGE Policy Briefing no. 27, June 2020: 13. https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/bn27.2020.pdf. 35 The Editorial Board, ‘Tax rises will be needed to fill Britain’s fiscal hole.’ The Financial Times , July 19, 2020. https://www.ft.com/content/8175c594-c809-11ea-9d81-eb7f2a294e50?shareType=nongift. 36 Jack Leslie, Cara Pacitti, and James Smith, ‘Act now, or pay later: The OBR’s Fiscal Sustainability Report makes clear the implications of a crisis- driven rise in unemployment for the public finances.’, July 2020: 8. https://www.resolutionfoundation.org/app/uploads/2020/07/OBR-FSR-Spotlight.pdf. 37 Ken Mayhew, and Samuel Willis. ‘Inequality: an assessment.’ Oxford Review of Economic Policy, Volume 35, Number 3, 2019: 357. 38 Mayhew Ken, and Paul Anand ‘Covid -19 and the UK labour market .’ Oxford Review of Economic Policy , graa017, June 2020: 5. .https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7313832/. 39 Mayhew Ken, and Paul Anand ‘Covid -19 and the UK labour market .’ Oxford Review of Economic Policy , graa017, June 2020: 5. .https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7313832/ 40 Michael P. Devereux, İ remG üç eri, Martin Simmler, and Eddy H.F. Tam. ‘ Discretionary Fiscal Responses to the Covid- 19 Pandemic ’ Oxford University Centre for Business Taxation. Sa ï d Business School, Oxford. June 2020: 2-13. 41 Michael P. Devereux, İ remG üçeri, Martin Simmler, and Eddy H.F. Tam. ‘Discretionary Fiscal Responses to the Covid - 19 Pandemic’ Oxford University Centre for Business Taxation. Sa ï d Business School, Oxford. June 202): 2-13. 42 https://www.oecd.org/unitedkingdom/49654269.pdf
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