A new report from the respected Institute for Fiscal Studies makes the claim that “the outlook for inequality in Britain may depend more on the stock market than on Government tax and benefit policies”.
Basically, the IFS have found that income inequality between the richest and poorest members of society declines “in the wake of extended falls in the stock market” (this is intuitive: falls in the stock market equate to falls in the incomes of the wealthiest). By contrast – at times when the stock market is operating smoothly – income inequality is hardly altered by redistributing wealth via both higher taxes for the rich and increased welfare payments for the poor. In other words, the redistributive policies of the past decade have had almost no effect in bridging the wealth gap.
Given that prospects for the stock market in 2008 are looking increasingly dreary, we should expect declines in income inequality this year.
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