Coase Lecture-Human Capital, Inequality and Tax Reform: Recent Past and Future Prospects

Abstract

Even before the financial crisis, many developed economies were facing growing inequality and struggling to maintain employment and earnings. This paper addresses two key questions. What has happened to inequality? Where will tax and welfare reforms have most impact? The UK is used as a running example. The analysis suggests that the pattern of sluggish real wages at the bottom looks set to continue, and longer-term earnings growth will come mainly from high-skilled occupations. Growing earnings inequality will bring increasing pressure on the tax and welfare system. A blueprint for a coherent tax policy reform is presented.