Inequalities have fallen out of favor: once accepted as a necessary evil for growth, the current level of inequality has now been condemned by many academic experts and leading financial institutions, including the IMF and World Bank. Extreme inequalities hinder the fight against poverty and divide our societies.
However, behind this apparent growing consensus is a fierce debate on how inequalities should be measured. Experts, politicians and activists clash, offering data that sometimes appears contradictory. Are global inequalities increasing? Are they decreasing? In France, are the rich getting richer and the poor getting poorer?
Despite well-established facts showing that inequalities between countries are decreasing, while the inequalities within countries are increasing, the reality is this: data on inequalities is still too fragmented. The time has come to revolutionize our approach and leave the prehistoric age of data measurement behind us.
A first step towards fairer public policies
How can we measure wealth and its distribution accurately? Today, as we face the dual crisis of climate and inequalities, the dashboard used to guide our public policy is still almost exclusively based on average growth indicators. These indicators, with GDP at the top of the list, focus on growth trends for the overall population. They cannot assess its negative effects on the environment and climate, or clearly determine the winners and losers.
Faced with the necessity of the energy transition and the reality of the inequality crisis, there is an urgent need to establish robust indicators on the distribution of wealth to ensure the energy transition will not come at the expense of the most vulnerable members of society.
What type of inequality are we talking about?
There are different ways to categorize inequalities: divergences in wealth and primary income (before taxes and social transfers) and disposable income (after taxes and social transfers). Income and wealth represent two different interpretive frameworks. The analysis of income helps identify return on labor and capital, whereas analysis of divergences in wealth focuses on the accumulation and transmission of wealth across generations. The second framework is relevant for analyzing wealth at the top of the distribution.
In France, for example, statistics from INSEE show that the gap between the primary income of the wealthiest 10% and that of the poorest 10% has increased since 2010, whereas the gap in disposable income has stagnated. Does our redistribution system truly correct growing market inequalities? It’s unlikely, given that income disparities do not take into account wealth amassed by French people, especially among the wealthiest groups. According to INSEE, between 1998 and 2015, the wealth of the wealthiest 10% increased 113%, whereas that of the poorest 10% decreased 31%.
Although it provides a more detailed view than the average or median, another method, the analysis of inequalities by deciles, also has its limitations. It hides changes in wealth at the extreme ends of the distribution. Research conducted by the World Inequality Lab on the tax database has resulted in much more accurate assessments of trends in income and wealth among the wealthiest 1% from dozens of countries. For example, in Côte d’Ivoire, data from the WID revealed that the wealthiest 1% account for 17% of income, whereas the most recent estimates set the level at approximately 12%.
In France, research conducted by independent institutes, such as OFCE and IPP, have produced analysis of public policies in centiles, and even thousandths. They confirm the widely shared sense that there has been a rise in inequality at the top of the distribution following recent tax measures, such as changing the French Solidarity Tax on Wealth (ISF) to the Real Estate Wealth Tax (IFI), or the creation of a single flat tax.
A key issue for democracy
These different interpretive frameworks are necessary for the comparative analysis of inequalities. However, the data required for this type of analysis are often incomplete: surveys on household consumption, tax returns (all tax declarations submitted by professionals and companies) and asset records all offer tools that can be improved to bring about a true change in this area.
Better data on inequalities are crucial in order to guide public policies, monitor their impacts, and provide citizens with a means of verifying government action. Improving the measurement of inequalities is a key issue for democracy! The sudden appearance of numerous protest movements against inequalities in France and around the world offers a clear political sign of the need to better measure public policies in terms of their impacts on inequalities.
France has the potential to act on inequalities
Although the work of researchers is limited by the lack of detailed data on income, household consumption, and wealth (especially among the wealthiest groups), it is possible to improve the measurement of inequalities in France. It is also possible to push for robust comparative indicators to be adopted internationally.
These improvements will require surveys on household consumption to be reinforced, the use of anonymized tax returns to assess the impact of redistribution systems on income, greater transparency on the assets of the highest fortunes, and a reinforcement of tax audits, particularly for the largest fortunes. In France, the sample from the ERFS survey conducted by INSEE could be expanded to fine tune the assessment. It might also be necessary to increase tax audits on the biggest fortunes in order to assess their wealth accurately.
Better data must be used to make the fight against inequalities a major focus of our public policies across the board, particularly through systematic measurement of their impacts on the purchasing power of French people. This is the purpose of the call by ATD Quart Monde, Oxfam France, Réseau Action Climat and Secours Catholique for the French government to establish a budget taking inequalities into account, with indicators assessing the impact of public policies on purchasing power, from the poorest 1% to the wealthiest 1%.
France, a driving force in fighting inequalities internationally
Since the fight against inequalities is a transnational issue, robust indicators must be integrated in as many countries as possible. From the HDI and SDGs to new indicators of French wealth, alternative indicators to GDP are emerging, though they are struggling to become widely used.
To bring about transformation beyond its borders, France could take advantage of the next revision of the UN System of National Accounts (SNA) to request the establishment of Distributional National Accounts (DINA) that would change standard indicators of average growth into wealth distribution indicators. A working group including statisticians from INSEE and researchers from the World Inequality Lab is prepared to offer specific methodological proposals for this purpose.
Establishing such indicators comes with a financial cost and requires expertise. Yet above all, it demands political will. Even now, France could increase funding to enhance the capacities of foreign statistical institutes through official development assistance. However, the coherence of its policies will be closely scrutinized. With the changing of ISF into ISF, France has deprived itself of an extremely precise tool for measuring the fortunes of its billionaires.
Far more powerful than great speeches on inequality or against denial, our best weapon is a good compass.
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