Positive link between reducing inequality and economic growth, adviser says

Top Obama adviser addresses Dublin audience on inclusive economic growth

Economic studies are increasingly showing that polices that reduce inequality are good for growth, the head of President Barack Obama’s council of economic advisers said during a visit to Dublin.

While traditionally , micro and macro-economic studies have emphasised a trade off between equity and growth, “at the very least it is becoming... harder to argue that reducing inequality is bad for growth. And it is becoming increasingly likely that it is good for growth.”

Jason Furman, who has a PhD in economics from Harvard University and has been in the Obama White House since the beginning of the president's first term, having before that acted as an adviser to the Clinton administration, was addressing an audience today in the Irish Institute for International and European Affairs.

In a speech on the topic of Global Lessons for Inclusive Growth, Mr Furman discussed policy options that would stimulate economic growth that would be shared and would have the potential to reduce inequality.


As well as such measures as the minimum wage, increased preschool education, and investment in transportation infrastructure, he addressed the taxation of wealth and said the Obama administration had increased the tax on capital gains and dividends for high income households, and on very large estates, though the rates are still below what they were in 1997.

“It is also important to focus on the corporate level, particularly preventing a race-to-the-bottom in corporate taxation. When countries compete with each other to lower corporate tax rates and provide preferences this not only risks their fiscal health, it also distorts the allocation of global capital and threatens to increase the portion of inequality stemming from capital income inequality.”

He said the Base Erosion and Profit Shifting project being run by the OECD, at the request of the G20, was imporant in this regard. The project is looking at policy changes to how international coporations are taxed.

“President Obama has also proposed, building on what other countries like Japan have done, a minimum tax on the overseas earnings of corporate subsidiaries which would help prevent stateless income that is not taxed anywhere, while reducing the incentives for other countries to engage in tax competition.”

Mr Furman said that, in conclusion, he was optimistic. The US, Ireland and other OECD countries had a lot of potential for productivity growth. “We have a lot of low-hanging fruit in terms of policies that can both reduce inequality and increase economic growth.”

A podcast of the speech can be accessed at http://www.iiea.com/events/global-lessons-on-inclusive-growth

Colm Keena

Colm Keena

Colm Keena is an Irish Times journalist. He was previously legal-affairs correspondent and public-affairs correspondent