Interview
'Income Tax Should Be Extended To Broader Groups'
The author of the surprise international bestseller, Capital, in the 21st Century, thinks that abolishing Income Tax is not a good idea
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Books on economy rarely move beyond the peer group of economists and their academic circle. But those old presumptions are now being put to the test and the rules are being rewritten from the time 42-year old French economist, Thomas Piketty, went viral. The publication of the English edition of his book—Capital, in the 21st Century—in the UK and the United States last month has already crossed the 200,000 mark and they are flying off the shelves in book stores across the world even faster than one can keep a count.

The central theme of Piketty’s book is on how rising inequality is killing capitalism and, based on the empirical data in the form of tax records of 30 leading world economies for over 300 years, his book argues that only state intervention could check this rising inequality. Though his parents were part of the students’ protest generation of 1960s France, Piketty himself is a believer of free market economy. But his strong argument in favour state intervention has now turned him into the new ‘poster-boy’ among the left and liberal sections, while he is as much at the centre of the debate in right-wing and conservatives circles with his proposal for a ‘global wealth tax.’

The arrival of the Indian edition of his book also comes at an interesting time as the 10-year tenure of the Congress-led United Progressive Alliance ends and makes way for the BJP-led National Democratic Alliance under Narendra Modi. What will be the likely economic model his government will pursue is not known yet. However, many of his self-proclaimed economic advisors have tossed up various theories and proposals during the run-up to the Lok Sabha elections that range from doing away with welfare schemes for the poor and under-privileged to abolishing the income-tax.

Taking time off from his extremely heavy schedule, Piketty answers a few questions that may prove to be crucial in the coming days for India in a brief interview with Pranay Sharma.


In the recent past there have been other economists too who have focused on the growing inequality in the US and other countries, say for instance Joseph Stiglitz has been talking about it for a while and also coined the term “one per cent versus the 99 per cent” to show the rising wealth gap. Where do you think you differ from such economists and what is so unique in the conclusion you make?

The main difference is that this book contains a lot more new historical evidence about income and wealth distribution. This is primarily a book about the history of money. Together with many colleagues, we have collected the largest existing historical database on the distribution of income and wealth, ranging over more than 20 countries and two centuries. The primary purpose of my book is to present this evidence in a consistent and readable manner, so as to contribute to a better informed, democratic debate.

With fellow economist Abhijit V. Banerjee, you had a special study on India. What are the broad trends of your finding about wealth distribution among Indians?

I should stress that we know too little about income and wealth distribution in India. With Abhijit, we found that top income shares have been rising in India since the 1980s-1990s. But we do not know much more than that, because the income tax administration has stopped publishing the data. Let me make clear that rising shares going to the top are not necessarily bad— at least until a certain point— assuming that they help to deliver higher growth and poverty reduction. But these are important issues that need to be studied with good data. Otherwise it is impossible to have an informed national conversation about these things.

Many economists in India believe and argue for the removal of ‘welfare measures’ for the poorer section since it hampers national growth and development. Do you agree with that view?

Investing in the education, health and welfare of the poor is certainly not bad for development: it is development. The overall share of tax revenues in GDP is relatively low in India. There is no example of a country in history that has been able to develop without important fiscal resources. It takes money to finance high quality investment in social services and public infrastructures.

Much of your study is based on records of income tax returns. But there are sections in India who keep demanding the abolition of annual income tax. If that happens, will it be a good thing for India?

The consequence is that it will reduce both tax revenues and democratic transparency about income. I think the income tax in India should be extended to broader groups of the population. This is what happened in every country during their development process; this is also what happened in China in recent decades, and this helped finance more social investment than in India, which ultimately was good for growth and for society as a whole. One should also keep in mind that the development of personal income and wealth tax systems is a way to promote more transparency about social inequality. For instance, income and wealth might be useful criteria for determining access to a number of social policies.

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