Redistributive Policies for Sustainable Development: Looking at the

DESA Working Paper No. 139

ST/ESA/2015/DWP/139

January 2015

Redistributive Policies for Sustainable

Development: Looking at the Role of

Assets and Equity

Department of Economic & Social Affairs

by Pierre Kohler*

ABSTRACT

Analyses of redistributive policies often focus on income ows to examine the nexus between redis-

tribution and economic growth. With strengthening signs of growing economic inequality in many

countries, an increasing number of economists investigated the existence and nature of a hypothetical

trade-o between economic growth and equity. As signs of unsustainable development are strength-

ening more generally, this paper proposes to look at the broader nexus between redistribution, equity

and sustainable development, emphasizing its social and environmental dimensions. It does so by

rst proposing an analytical framework dening the role of redistributive policies in shaping the pri-

vate income cycle as well as the public revenue-expenditure cycle. is framework distinguishes be-

tween the stock of income-generating assets (such as human capital and wealth, including land and

industrial and nancial capital) and deriving income ows in order to clarify the dierence between

the two sides of in-equity (i.e. in-equality of opportunity and in-equality of outcome), which remain

intertwined in the growth-equity trade-o debate. is stock-ow approach is then used to outline

key linkages between redistributive policies, in-equity and un-sustainable development. Contrasting

the potential scope of redistributive policies with the more narrow set of policies that have been im-

plemented in most countries/regions over the last 30 years, the paper discusses 14 avenues for redis-

tributive policies to promote greater equity, economic empowerment and sustainable development.

JEL Classication: D31, H2, H3, H4, H41, H71, H82, H87

Keywords: Income, wealth, inequality, scal policy, redistributive policy, public social spending,

revenue mobilization, progressive tax system, net wealth tax, carbon tax, international tax coop-

eration, unitary taxation, formulary apportionment, post-2015

* I would like to thank Diana Alarcon, Matthias Bruckner, Sarah Cook, Andrea Cornia, Danny Dorling, Pingfan Hong, Naz-

rul Islam, Alex Izurieta, Alex Julca, Massoud Karshenas, Gregory Mikkelson, Sol Picciotto, omas Piketty, Samson Moyo,

Sanjay Reddy, Marco Sanchez-Cantillo, Erika Siu, Rehman Sobhan, Frederick Solt, Frances Julia Stewart, Sergio Vieira, David

Woodward, Willem Van Der Geest, John Winkel, Eduardo Zepeda and anonymous referees for invaluable comments and

discussions.

Address for correspondence: kohler.pierre@gmail.com or kohler[email protected]

CONTENTS

1. INTRODUCTION ..........................................................1

2. REDISTRIBUTIVE POLICIES, IN-EQUITY AND UN-SUSTAINABLE DEVELOPMENT......2

a. An asset-centred analytical framework .....................................2

b. Stylized facts about redistributive policies and linkages to in-equity

and un-sustainable development ..........................................5

3. REDISTRIBUTIVE POLICY TRENDS IN A CHANGING CONTEXT ....................13

a. Public economics and redistributive policies .................................13

b. Shrinking government for private investment-led economic growth ..............14

c. From expenditure cuts to increased social spending ..........................14

d. The neoliberal tax legacy and regressive revenue mobilization ..................17

4. TOWARDS A FRAMEWORK ENABLING REDISTRIBUTIVE POLICIES FOR EQUITY AND

SUSTAINABLE DEVELOPMENT...............................................25

a. Redeﬁning equity and development in sustainable terms ......................25

b. Building institutions and designing policies..................................26

c. Fostering international cooperation........................................30

Box 1: Unitary taxation as an alternative approach to taxing TNCs —

how to neutralize capital mobility for corporate taxation purposes?...............33

5. CONCLUSION ............................................................35

REFERENCES .............................................................42

UN/DESA Working Papers are preliminary documents

circulated in a limited number of copies and posted on

the DESA website at http://www.un.org/en/development/

desa/papers/ to stimulate discussion and critical comment.

e views and opinions expressed herein are those of the

author and do not necessarily reect those of the United

Nations Secretariat. e designations and terminology

employed may not conform to United Nations practice

and do not imply the expression of any opinion whatsoever

on the part of the Organization.

Typesetter: Nancy Settecasi

UNITED NATIONS

Department of Economic and Social Affairs

UN Secretariat, 405 East 42nd Street

New York, N.Y. 10017, USA

e-mail: [email protected]

http://www.un.org/en/development/desa/papers/

1 Introduction

e growing concentration of wealth and income,

which may represent an inherent feature of capital-

ism (Piketty 2013), stands in sharp contrast with

the increasingly cooperative nature of wealth crea-

tion in ever more interdependent and globalized,

but segmented and dispersed production processes

(Moulier-Boutang 2012). It further prevents eradi-

cating poverty without breaching planetary bound-

aries (Rockström et al. 2009, Gerst et al. 2013). An

approach for simultaneously addressing issues of

resource allocation, wealth and income distribution

as well as the quantity of natural resources nurturing

economic activity is therefore required (Costanza et

al. 2012, Farley et al. 2013).

Redistributive policies are an essential component

of strategies for reducing inequality and promoting

sustainable development in its three dimensions:

economic, social and environmental. ey represent

a powerful policy instrument for improving equality

of outcome through the redistribution of income and

for enhancing equality of opportunity by improving

the distribution of income-generating assets, such

as human capital and wealth (including land and

industrial and nancial capital) across individuals

as well as between the private and the public sector.

Beyond their strong potential for reducing inequali-

ty, redistributive policies are also key for promoting

values that are consistent with sustainable develop-

ment and for shaping a socio-economic context and

incentives that are conducive to nancial stability

and economic development, political inclusion, gen-

der equality and social mobility, as well as environ-

mental sustainability.

Yet, partly as a result of ineective redistributive pol-

icies, inequality is rising in many countries, the un-

derprovisioning and underfunding of public goods

is widespread and externalities harmful to global

commons, which are generated by the unsustainable

exploitation of natural assets, are often underpriced.

Against this inconvenient backdrop, recurring pro-

jections (Piketty 2013, Stern report 2006, OECD

2012) highlighting the costs and consequences of

inertia in economic, social and environmental terms

resonate as a continuous invitation for renewed

thinking and urgent action.

Arguments on redistributive policies and equity

have been inseparable since before the emergence

of economics as the study of political economy, but

concerns for equity where progressively eclipsed by

the objective of promoting economic growth follow-

ing inuential work by Kuznets (1955). Based on

short data series about the United States, Kuznets

assumed that market forces would rst increase in-

equality before decreasing inequality along the eco-

nomic development path. e conception of rising

inequality as a natural and temporary phenomenon

that would mechanically reverse over time contribut-

ed to the perception that redistributive policies with

potentially distorting eects could be economically

harmful and superuous. e growing availability

of data and evidence of continuously rising income

inequality in many developing and developed coun-

tries led researchers in academia (e.g. Persson and

Tabellini 1994, Alesina and Rodrik 1994, Benabou

1996, Aghion et al. 1999, Banerjee and Duo 2000,

Barro 2000, Forbes 2000, Stiglitz 2013) and inter-

national institutions (e.g. Bruno et al. 1999, Ostry et

al. 2011 2014) to reassess or challenge the existence

of a trade-o between economic growth and equity.

While some of those economists supported broader

income redistribution, others further argued in fa-

vour of redistributing income-generating assets for

economic growth. Some of them claimed that the

absence of substantial asset redistribution represent-

ed a barrier to economic development and poverty

reduction in some developing countries (Ghosh

2010) and called for land reform and interventions

to strengthen poor people’s control over assets (Jomo

2006, Meinzen-Dick 2009).

Taking stock of this literature, this paper proposes

to examine the nexus between redistributive pol-

icies, equity and sustainable development, paying

particular attention to the role of asset distribution

for in-equity and un-sustainable development. It

argues that in a context characterised by lack of

consensus about the existence of a growth-equity

DESA WORKING PAPER NO. 139

trade-o, growing sustainability challenges, such as

rising wealth inequality and carbon emissions, and

the upcoming transition from the MDGs to SDGs,

redistributive policies can no longer be assessed pri-

marily in light of their impact on economic growth

and must be shaped in pursuit of equally important

social and environmental objectives. It does so by

rst proposing an analytical framework dening the

role of redistributive policies in shaping the private

income cycle as well as the public revenue-expend-

iture cycle. is framework distinguishes between

the stock of income-generating assets (such as hu-

man capital and wealth, including land and indus-

trial and nancial capital) and deriving income ows

in order to clarify the dierence between the two

sides of in-equity (i.e. in-equality of opportunity

and in-equality of outcome), which remain inter-

twined in the growth-equity trade-o debate. is

stock-ow approach is then used to outline key link-

ages between redistributive policies, in-equity and

un-sustainable development, and the role of asset

distribution among private actors and between the

private and public sector. Contrasting the potential

scope of redistributive policies with the more narrow

set of policies that have been implemented in most

countries/regions over the last 30 years, the paper dis-

cusses possible avenues for redistributive policies to

promote greater equity, economic empowerment and

sustainable development in the post-2015 context.

Section 2 proposes an analytical framework that en-

compasses income ows, but is centred on the stock

of income-generating assets, to clarify the role of the

various redistributive policy instruments that are

discussed in the paper for shaping asset and income

distribution among private actors and between the

private and public sector. Based on this asset-centred

analytical framework, it presents stylized facts and

suggestive evidence illustrating some key linkages

to in-equity and un-sustainable development. Sec-

tion 3 discusses trends in redistributive policies in

an evolving intellectual, political and institutional

context that is currently inuenced by the prevail-

ing political consensus and commitment to private

investment-led economic growth.

It discusses the

positive impact of rising public social spending, in-

cluding for education, health and social protection,

but also stresses insucient progress with regard to

ensuring adequate and stable funding and addressing

environmental sustainability issues. e section ex-

amines changes in the collection of non-tax revenue

deriving from the accelerated exploitation of natural

resources. e prominence of increasingly regressive

tax structures leads to a discussion of factors sub-

verting progressive revenue mobilization, such as

slashes in wealth, top personal and corporate income

tax rates, the increased use of regressive indirect

taxes, and growing tax abuses, including harmful

tax competition, tax avoidance and evasion by high

net worth individuals (HNWIs) and transnational

corporations (TNCs). e section also highlights

redistributive policies that positively contributed to

equity and sustainable development, especially in

Latin America. Section 4 discusses possible steps for

moving towards a framework enabling redistributive

policies promoting equity and sustainable devel-

opment. It also emphasizes the limits of domestic

policy initiatives and the need for increased inter-

national cooperation, notably regarding the taxation

of mobile capital income and nancial wealth of

HNWIs and TNCs. Section 5 concludes.

2 Redistributive policies,

in-equity and un-sustainable

development

a. An asset-centred analytical

framework

Figures 1 and 2 propose an asset-centred analytical

framework for mapping most of the redistributive

policy tools that are discussed in this paper as well

as for highlighting some key linkages to in-equity

and un-sustainable development. Figure 1 is centred

on the stock of private income-generating assets that

(along with transfers and taxes) play a key role in

shaping the private income cycle. Figure 2 is centred

on the stock of public income-generating assets to

represent the cycle of public revenue and expenditure.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

Governments dispose over a large number of redis-

tributive policy tools in pursuit of their policy objec-

tives. In gure 1, policy instruments that determine

the structural distribution of income-generating

assets and income across individuals have been re-

grouped in three broad categories, including wealth

redistribution, income redistribution and the provi-

sion of public goods. While income redistribution

is most important for in-equality of outcome, the

provision of public goods and wealth redistribution

both directly inuence the distribution of private in-

come-generating assets, which along with purely ex-

ogenous factors, such as family background, gender

or ethnicity is a major determinant of in-equality of

opportunity.

Private income-generating assets (1) are dened as

encompassing human capital embodied in people,

such as education and knowledge (1-i), as well as

property rights protecting accumulated wealth en-

suring rents to owners of land and industrial and

nancial capital (1-ii). While many countries suc-

ceeded in fostering human capital and improving

its distribution across social groups (UNDP 2012),

wealth remains highly concentrated. At the global

level, the top 1 per cent own 40 per cent of global

wealth (UNDP 2013) and the 85 richest individuals

Figure 1

Private income-generating assets, redistributive policy instruments and the private income cycle

Source: Author, elaborated from Lustig and Higgins (2012). Note: VAT stands for value-added tax, FTT stands for ﬁnancial

transaction tax.

DESA WORKING PAPER NO. 139

have an estimated net worth equivalent to that of

the poorest half of the planet (Oxfam 2014). At the

domestic level, wealth is similarly concentrated, with

the top decile controlling between 70 per cent to 90

per cent of total national wealth in many countries

(Davies et al. 2011, Piketty 2013). As discussed in

section 3, despite increasing wealth concentration

and its negative eects on sustainable development,

existing redistributive policy frameworks only sel-

dom include measures for wealth redistribution

among private actors.

In this context, the asymmetric distribution of in-

come-generating assets across individuals generates

asymmetric labour and especially capital income

ows, resulting in market income inequality (4-i-

ii). In most countries experiencing rising inequality,

market inequality is carried on along the income

cycle, resulting in elevated nal income inequality

and a reinforcing feedback loop. Progressive direct

taxes revenue (5) and direct transfers (6) have the

potential to reduce market income inequality and

stabilize disposable income (7) to protect vulnerable

individuals against market uctuations, but they

are generally insucient for reducing inequality or

eradicating poverty, especially in developing coun-

tries. As a corollary, the increased reliance of devel-

oping countries on regressive indirect tax revenue (9)

makes progressive transfers even more important for

reducing inequality.

Since the turn of the Millennium, most redistrib-

utive policy frameworks strongly emphasized the

need for increasing public social spending on ed-

ucation and health (11-i) in particular in order to

foster human capital. Mobilizing the required public

revenue remains a challenge, however. Narrow and

weakly representative political coalitions as well as

insucient economic development prevent many

countries from raising the tax revenue required to

expand government services beyond basic security

services (11-ii) protecting existing ownership and

debt structures (Nitzan and Bichler 2009, Winters

2011, Graeber 2012). e allocation of resources to

the public provision of law and order through courts,

police/armed forces and prisons is acknowledged to

be economically unproductive. Recent evidence fur-

ther shows that countries spending more on security

services also experience higher income inequality

(Bowles and Jayadev, 2006, 2014).

Policy instruments mapped in gure 1 all contrib-

ute to the cycle of public revenue and expenditure

represented in gure 2: taxes (including corporate

taxes, which did not appear in gure 1) raise public

revenues and transfers generate public expenditure.

Government intervention for wealth redistribution

between the public and private sector is more com-

mon than interventions for wealth redistribution

among private actors. Over the last decades, many

governments adopted market-friendly policies pri-

vatizing a number of public income-generating

assets (a).

is trend stimulated market activity in

some countries, but weakened the capacity of gov-

ernments to conduct asset-based public policies and

to intervene in the economy, society and the envi-

ronment. For instance, with natural resources being

transferred to the private sector and considered as

commodities subject to prot maximization, policy

options for governments to ensure universal and

equitable access, or to restrict their unsustainable

exploitation, marketization and consumption be-

came more limited. e associated privatization of

economic rents further came at the cost of regular

revenue deriving from public assets (b). Consequent-

ly, governments increasingly rely on income-based

public policies to fund their current and capital

expenditures (f and g) through borrowing (c) or, as

wealth taxes and environmental taxes are inexistent

or insignicant in most countries, by levying taxes

on private income and consumption (d).

e analytical framework sketched using gures 1

and 2 will help articulate linkages between redis-

tributive policies, in-equity and un-sustainable de-

velopment in the rest of this section. It will further

contribute structuring the survey of existing redis-

tributive policy frameworks in section 3 and the

ensuing discussion in section 4.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

b. Stylized facts about redistributive

policies and linkages to in-equity

and un-sustainable development

The weakening impact of

redistribution at the global level

over time

e impact of redistributive policies on income ine-

quality and sustainable development can be signi-

cant, but it varies across countries and over time as

redistributive policies are shaped by domestic factors,

such as demography, economic and political condi-

tions, and further inuenced by the international

strategic and ideological context. At the global level,

the impact of redistributive policies was strongly

inuenced by major wars, strategic shifts and ideo-

logical inexions.

Figure 3 reects the evolution of the popula-

tion-weighted global averages of domestic market

Gini (before direct taxes/transfers) and net Gini (af-

ter direct taxes/transfers) coecients between 1970

and 2012. Both indices increased in tandem over

that period as they were inuenced by various factors,

including redistributive policies. As market-friendly

policies gained steam and institutionalized, market

income inequality increased rapidly starting in the

mid-1980s, with slashes in top marginal income and

corporate tax rates encouraging rising executive pay

and shareholder dividends mostly accruing to the

wealthiest (Piketty et al., 2014). As direct transfers

were not stepped up to compensate for rising mar-

ket income inequality, at least 75 per cent of the

world population experienced higher net/disposable

income inequality at the domestic level int 2012

compared to 1980. On average, market and net Gini

coecients have increased by almost 7 points since

the mid-1980s, reaching 47.7 points and 43.3 points

in 2012, respectively.

Figure 2

Public income-generating assets and the public revenue-expenditure cycle

Source: Author.

DESA WORKING PAPER NO. 139

On average, the reduction in income inequality that

is observed when comparing market and net/dis-

posable income distributions is mostly explained by

direct transfers, which account for about 80 per cent

of the reduction (IMF 2013a, Cornia 2012). is

observation may at rst be interpreted as a sign that

direct transfers are much more ecient than direct

taxes for reducing disposable/net income inequality,

but such an interpretation overlooks several impor-

tant points. First, taxes and transfers are not substi-

tutes, and it is important that they complement each

other in order to consistently reinforce the overall

impact of redistributive policies. Secondly, direct

transfers can be funded by direct and indirect tax

revenue. e inequality-reducing eect of direct

transfers should therefore be larger than the eect of

direct taxes, especially in developing countries where

indirect taxes generate a larger share of government

revenue. irdly, the observation that direct taxes

only account for about 20 per cent of the net/dis-

posable income inequality reduction highlights how

poorly progressive direct tax collection is in many

countries. Finally, in addition to their impact on

disposable/net income inequality, progressive direct

taxes have the additional role of deterring excessive

compensation, which has become a key driver of

rising market income inequality in many countries

(Piketty, Saez and Stancheva 2014, Alvaredo et al.

2013). Countries that have most extensively imple-

mented prescriptions to slash wealth, top personal

and corporate income tax rates also experienced the

most signicant rise in top income shares since the

early 1980s, without registering the promised higher

economic growth (gure 4).

Figures 3 and 4 both highlight a signicant rise in

income inequality over the decades, but both under-

estimate it for dierent reasons and may potentially

downplay the eorts required for reducing inequali-

ty. Survey-based income inequality measures, such as

Gini estimates in gure 3, often rely on data samples

that truncate the top of the income distribution, be-

cause top incomes are under-represented in surveys

or due to top-coding method shortcomings (Alvare-

do 2010). Top income shares in gure 4 are estimat-

ed using non-truncated scal data, but under-report-

ing of income to tax authorities is common and tax

evasion has grown rapidly over the last decade (Palan

et al. 2010, Zucman 2013 and 2014). Furthermore,

0 2 4 6 8

Increase in Gini net since 1970 (in points)

30 35 40 45 50 55

Gini index (in points)

1970 1980 1990 2000 2010

year

Gini net (LHS) Gini market (LHS)

Increase in Gini net since 1970 (RHS)

Figure 3

The weakening impact of redistribution and higher within-country income

inequality at the global level (1970-2012)

Source: Author.

Note: Based on SWIID (version

4.1) and UNPOP data. Dotted lines

indicate 95 per cent conﬁdence

intervals for market and net Gini

coefﬁcients. Global market and

net/disposable inequality indices

are computed as population-

weighted averages of within-

country Gini indices as deﬁned in

the SWIID database. See ﬁgure 1

for an illustration of the difference

between market and disposable/

net income.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

top scal incomes generally only represents a tiny

fraction of top eective economic incomes, which go

largely untaxed, because tax avoidance schemes de

facto exclude many capital income ows from the

tax base. Consequently, measures imposing higher

top marginal tax rates on scal income without

strengthening its tax base, such as the Buett rule,

are of limited signicance (Piketty 2013).

Redistribution of income, in-equality

of outcome and un-sustainable

development

e redistributive impact of taxes and transfers is

most signicant in developed countries, in accord-

ance with the Wagner Law, which observes that

government revenue/spending increases steadily

with GDP, because of the gradual formalization

of the economy and the related greater ease to tax.

Signicant dierences among countries with similar

income levels, however, highlight the role of institu-

tions, governance and political inclusion.

In developed countries, reduced tax rates on top in-

comes and regulatory loopholes weaken the ability

of redistributive policies to contain excessive com-

pensation, but social protection measures

stabilize

the income of most vulnerable individuals and social

groups, shielding them from extreme poverty and

reducing income inequality to a limited extent. In

Western and Northern Europe, for instance, gov-

ernment (tax and non-tax) revenue and expenditure

amount to around 45 per cent of sub-regional GDP.

Figure 4

Changes in top marginal tax rates, top 1 per cent income shares and real annual per capital GDP growth

(1960-4 and 2005-9)

Source: Piketty, Saez and Stancheva (2014). Note: the same pattern is observed over the 1975-2008 period (Piketty, Saez and

Stancheva 2011). See also the World Top Incomes Database project: http://topincomes.g-mond.parisschoolofeconomics.eu.

R2 is 0.56 in the left panel, 0.00 in the right panel.

DESA WORKING PAPER NO. 139

Direct taxes and transfers alone reduce income ine-

quality by around 15 Gini points, about four times

the global average (gure 5).

By contrast, in developing countries the predom-

inantly rural and informal economic structures,

weak tax administrations as well as the weaker and

more narrow political coalitions often prevent the

development of strong progressive redistributive

institutions (Joshi et al. 2012, Moore 2013), thus

generating more unequal societies, where extreme

poverty stands in sharper contrast with concentrated

wealth. Government (tax and non-tax) revenue and

expenditure amount to between 20 to 35 per cent

of GDP in most developing sub-regions, a larger

share of it being spent on basic security and other

core functions of government, inducing only a weak

reduction or an increase in income inequality.

Countries with less developed redistributive policies

consistently experience higher levels of income ine-

quality, but outcomes further depend on the pattern

of redistribution. Direct monetary transfers through

social protection programmes are the most direct

way to alleviate poverty, but insucient transfers and

coverage as well as discriminatory practices often

leave large segments of the population in developing

countries vulnerable to temporary economic risks

and enduring extreme poverty. Furthermore, gen-

der-blind approaches to social protection often di-

rectly discriminate against women in developed and

developing countries. In addition to employment and

wage discrimination experienced in the labour mar-

ket, most women standing at the crossroad of paid

work and unpaid care work suer the injustice of so-

cial insurance schemes that assume full-time, formal

and life-long employment as the norm (Razavi et al.

2012). Increased gender awareness in the design of

more ambitious social protection programmes is key

for poverty reduction, gender equality and sustaina-

ble development.

Redistribution of income-generating

assets, in-equality of opportunity and

un-sustainable development

Human capital

Redistributive policies can also foster equality of

opportunity by shaping the distribution of in-

come-generating assets, including human capital.

Public spending on education and health, which are

Northern America

Eastern Africa

Middle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South America

Central Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western Asia

Eastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

20 25 30 35 40 45

Total revenue (as a share of GDP)

0 5 10 15

Decrease in Gini index after direct taxes/transfers (points)

Northern America

Eastern Africa

Middle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South America

Central Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western Asia

Eastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

25 30 35 40 45 50

Total expenditures (as a share of GDP)

0 5 10 15

Decrease in Gini index after direct taxes/transfers (points)

Figure 5

Redistributive policies and income inequality reduction

across sub-regions (2006)

Source: Author.

Note: Based on data from SWIID

(version 4.1), UNPOP and Torres

(2013). Sub-regions are deﬁned

according to the UN deﬁnition (see

http://unstats.un.org/unsd/methods/

m49/m49regin.htm). The year 2006

was chosen, because Torres (2013)

gathered accurate revenue and

expenditure data for a large number

of countries for the year 2006. All

variables are population-weighted.

Tax revenues include income taxes,

payroll taxes, taxes on goods and

services, trade taxes and other taxes,

but exclude revenue from grants and

non-tax revenue (e.g. revenue from

oil, etc.). Current expenditures cover

compensation of employees and

social beneﬁts, but exclude capital

expenditures and interest payments.

R2 is 0.52 in the left panel and 0.60 in

the right panel.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

key for building up a strong and productive labour

force, has gained prominence in the development

debate in the wake of the Millennium declaration

that enshrined education and health objectives at the

heart of the international development agenda (e.g.

ensure universal access to primary education and

gender equality in secondary education, reduce child

and maternal mortality). Yet, with a few exceptions,

public social spending increased only modestly in

most developing countries. In 2010, public spending

on education ranged between 3 and 6 per cent of

GDP in most developing sub-regions, while public

spending on health was still inferior to 2 per cent

of GDP in some developing sub-regions. Increased

public social spending generally fosters human de-

velopment, but this link seems weaker in presence of

high income inequality. Figure 6 shows that sub-re-

gions with high income inequality are generally less

successful in mobilizing resources for and fostering

human development.

Besides hampering resource mobilization for public

social spending, inequality further exerts direct neg-

ative eects on health outcomes, with broader im-

plications for sustainable development. Interestingly,

almost all problems that are common at the bottom

of the income ladder within countries are more com-

mon in more unequal societies. Among developed

countries, where extreme poverty has already been

eradicated, more unequal societies systematically ex-

perience more health and social issues, such as short-

er life expectancy, higher infant mortality, mental

illnesses, such as drug and alcohol addiction, obesity,

but also teenage births, lower levels of trust, social

immobility as well as more homicides and higher in-

carceration rates (Wilkinson and Pickett 2011). e

negative impact of inequality on health and social

cohesion in rich countries signals that well-being is

about more than escaping material poverty and sig-

nicantly depends on social structures and symbolic

hierarchies, which are most clearly reected in the

degree of income inequality. In developing countries

where poverty reduction remains the main lever for

improving health outcomes, policies reducing in-

come inequality could contribute to simultaneously

reducing poverty and improving health outcomes

(Wilkinson and Pickett 2011).

Similar direct linkages exist between equity, edu-

cation and sustainable development. A comparison

Northern America

Eastern Africa

Middle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South America

Central Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western Asia

Eastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

30 40 50 60

Gini net (in points)

2 4 6 8 10 12

Public expenditure on health (as a share of GDP)

Northern America

Eastern Africa

Middle Africa

Northern Africa

Southern Africa

Western Africa

Caribbean

Central America

South America

Central Asia

Eastern Asia

Southern Asia

South-Eastern Asia

Western Asia

Eastern Europe

Northern Europe

Southern Europe

Western Europe

Australia and New Zealand

Melanesia

30 40 50 60

Gini net (in points)

50 60 70 80

Life expectancy (in years)

Figure 6

Income inequality, public health spending (as a share of GDP) and

human development across sub-regions (2010)

Source: Author. Note: Based

on WDI, SWIID (version 4.1) and

UNPOP data. All variables are

population-weighted. R2 is 0.31 in

the left panel and 0.22 in the right

panel.

DESA WORKING PAPER NO. 139

of 13 developed countries highlighted that higher

income inequality is consistently associated with

lower inter-generational earnings mobility and so-

cial mobility (Corak 2013). Additionally, spending

on higher education in developed countries may be

rising, but it is often biased towards elite universities

that strengthen social stratication, social immo-

bility and self-reproduction of the elite (Brezis and

Hellier 2013). ese ndings all point at the limits

of redistributive policies that aim at fostering sus-

tainable development exclusively through human

development, disregarding the role of income and

wealth inequality as structural determinants of

health and education outcomes across individuals

and generations.

Wealth, including land and

industrial and ﬁnancial capital

Redistribution of other income-generating assets

protected by property rights, such as wealth ensuring

rents to owners of land and industrial and nancial

capital remains less prominent in domestic and inter-

national discussions. e absence of public debate on

this issue is related to several factors, including insuf-

cient awareness about the role of wealth inequality

in perpetuating income poverty. It is also partly due

to the widely held view that markets work eciently

and result in fair outcomes provided equality of op-

portunity, i.e. equal access to education, is upheld.

Beyond the problem that equality in access to ed-

ucation remains incomplete in many countries and

is often limited to primary or secondary education,

this approach is based on an overly narrow denition

of equality of opportunity, which unreasonably puts

exclusive emphasis on human capital and ignores all

other forms of capital that shape the opportunities

that are available to individuals.

As mentioned above, wealth inequality is more pro-

nounced than income inequality and represents an

obstacle to sustainable development. In many coun-

tries, high concentration of land ownership contrib-

utes perpetuating inequality and eroding incentives

for sustainable agricultural methods and land use

(Sobhan 2010, Moyo 2013). Similarly, concentrated

ownership structures of industrial or nancial cap-

ital heighten risks of market power abuse and the

unfair distribution of economic gains. Evidence

further shows that returns to nancial capital tend

to increase with nancial wealth.

By channelling

capital income to the benet of the wealthier, high

nancial wealth inequality nurtures income and

wealth inequality. Wealth concentration can be par-

ticularly problematic when the after-tax return on

capital (r) is much higher than economic growth (g),

which is currently the case in many countries experi-

encing rising inequality. For instance, if r=5 per cent

and g=1 per cent, the split between capital income

and labour income will remain stable only as long as

wealth holders consume 80 per cent of their capital

rent and reinvest the remaining 20 per cent, but it

will start growing if wealth-holders reinvest more

than 20 per cent of capital income. Furthermore, if

returns to nancial capital consistently increase with

nancial wealth, wealth concentration may increase

steadily even if the split between capital income and

labour income remains stable at the aggregate level

(Piketty 2013). While the capacity of governments

to boost technological innovation and economic

growth in the long run may be limited (and lower

economic growth, especially in developed countries,

may be required for the sake of climate stabilization),

many governments have implemented policies boost-

ing the after-tax return on capital over the last three

decades, with little regard for equity and sustainable

development, and mitigated or negative eects on

long-term economic growth (Ostry and Berg 2011,

Ostry et al. 2014).

e reinforcing interaction between capital accu-

mulation, income and wealth concentration is best

documented in countries where inequality can be

assessed based on long-term scal data capturing

information about the top of the income and wealth

distribution. Figure 7 illustrates how the Great

Depression and wars depleted the aggregate capital

stock in the rst half of the twentieth century in

the United States and especially in Europe as well as

the resuming process of capital accumulation after

the Second World War, which tends to increase the

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

role of wealth as a determinant of income. Capital

destruction unwounded wealth concentration in the

United States, but wealth concentration declined

further in Europe during the thirty glorious years

(1945-1975). is period characterized by intense re-

construction eorts in combination with progressive

taxation keeping after-tax returns on capital inferi-

or to economic growth (r<g), however, may be an

exception rather the historical norm. With weaker

economic growth in the wake of the oil shocks and

conservative reforms that boosted the after-tax re-

turn on capital (r>g), rising income inequality rst

resumed in the United States around 1980, nurtur-

ing wealth concentration more intensively than in

Europe, where conicting national policy priorities

and socio-democratic traditions formerly prevailing

in some countries slowed down the institutionali-

zation of neoliberal ideas.

Figure 7 represents the

wealth and income share of the top decile in the

United States and Europe, but recent changes are

largely driven by changes in the top 1 per cent, which

controls about half of the top decile’s income and

wealth share, including the vast majority of nancial

wealth and nancial capital income. Consequently,

absent a rehabilitation of progressive wealth taxation

robust enough to unwind concentrated ownership

structures, inequality may be bound to increase to

the point of reviving a patrimonial capitalism akin to

20 40 60 80 100

2 3 4 5 6 7

1900

1980

2000 20101914-18

1929

1939-45

European capital stock/GDP (LHS) US capital stock/GDP (LHS)

European top 10 per cent wealth share (RHS) US top 10 per cent wealth share (RHS)

European top 10 per cent income share (RHS) US top 10 per cent income share (RHS)

Figure 7

Capital stock accumulation, and the mutually reinforcing dynamic between wealth and income inequality

in Europe and the United States (1900-2010)

Source: Author based on Piketty (2013).

Note: The European countries included are France, Germany, Sweden and the United Kingdom of Great Britain and Northern

Ireland, reﬂecting data limitations. Income shares are pre-tax estimates. Capital stock and the derived wealth shares include

land, and industrial and ﬁnancial capital. Wealth and income shares of total wealth and income are measured along the vertical

axis on the left; and the ratios of the value of capital stock to GDP is measured along the vertical axis on the right.

DESA WORKING PAPER NO. 139

the one that predominated in many European coun-

tries in the 19th century (Piketty 2013), with a more

globalized and nancialized avour, harming equal-

ity of opportunity and sustainable development.

Redistributive policies and the

un-sustainable use and in-equitable

access to natural resources for

present and future generations

e potential for redistributive policies to promote

environmental sustainability remains underex-

ploited. In most countries, environmental taxes are

closely tied to carbon sources, such as energy and

vehicles, but they remain almost insignicant, espe-

cially in developed countries with the highest carbon

emissions. At the same time, energy subsidies signi-

cantly stimulate the production and consumption of

fossil fuels in many countries,

amounting to global

expenses of $1.9 trillion in 2011, the equivalent of

2.5 per cent of global GDP, or 8 per cent of govern-

ment revenue (IMF 2013b). Higher environmental

tax revenue is consistently associated with lower

carbon emissions across all country income groups

(gure 8). Hence, a rise in environmental taxes, in-

cluding the creation of carbon border tax,

and a

decline in fossil fuel subsidies would certainly foster

more sustainable use of natural resources and help

curbing negative externalities.

If left unchecked, however, the regressive impact of

higher at indirect environmental taxes targeting

consumption could potentially lock the poorest out

of markets and deprive them from access to ener-

gy and other goods likely subject to elevated envi-

ronmental taxes. Most countries could implement

progressive taxes tied to individual consumption of

some goods and services that are particularly harm-

ful to the environment, such as ights or secondary

residences (Casal 2012). Equitable access to natural

resources could be fostered by the progressive redis-

tribution of environmental tax revenue as well as of

proceeds of socialized natural resource rents, such as

in Norway, where corporate prots in the oil sector

are taxed at a rate of 78 per cent,

despite the rela-

tive dicult conditions for oil extraction, which are

often invoked to justify the extensive privatization

Italy

United Kingdom

Korea

Germany

France

Australia

Spain

Japan

Canada

United States

Turkey

Brazil

South Africa

China

Argentina

Mexico

India

0 5 10 15 20

CO2 emissions per capita (metric tons)

-1 0 1 2 3 4

Environmental tax revenue (as a share of GDP)

Note: High income=blue; upper middle income=maroon; lower middle income=green.

Figure 8

Environmental tax revenue and carbon emissions in G20 countries (2010)

Source: Author. Note: Based

on data from WDI and OECD.

Environmental tax revenue

data is missing for Indonesia,

the Russian Federation and

Saudi Arabia. Environmental

tax revenue mainly arises from

energy and vehicle taxes, which

are closely related to carbon

emissions. The negative tax

revenue in Mexico is due to

the system stabilizing end-user

prices of motor fuels, which is

costly in years with high world-

market fuel prices. R2 for high

income countries is 0.42 and

0.23 for upper middle income

countries; India is the only lower

middle income country.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

of natural resource rents in countries lacking good

governance.

Alternative mechanisms, which may involve the

more direct ownership and management of natural

resources by independent public institutions driven

by other motives than prot maximization may also

be required to avoid the breach of planetary bounda-

ries and preserve the rights of future generations. e

Yasuní initiative proposed by Ecuador in 2007, for

instance, highlights how public ownership of natural

resources could contribute reining in the excessive

exploitation of natural resources, provided interna-

tional cooperation can be stepped up to address in-

ternational as well as inter-generational equity con-

cerns. is initiative proposed that Ecuador refrains

indenitely from exploiting the oil reserves from

three oil elds within the Yasuní National Park, in

exchange for 50 per cent of the value of the income

it would be forgoing (an estimated $3.6 billion) from

the world community. e Yasuní initiative oered

the advantage of integrating many elements required

for sustainable development, including ecosystem

protection, climate change mitigation, and support

for the rights of indigenous peoples, but it was -

nally abandoned in 2013 due to lack of funds raised

(e Guardian, 19 September 2013). e fallibility

of governments in need of nancial resources shows

that more independent public institutions, such as

trusts that are isolated from nancial pressures may

be required in some countries for managing natu-

ral commons in a sustainable manner. Existing ex-

amples at the local and national level suggest such

alternatives are feasible and could help preserving

ecosystems and natural resources,

including by pre-

venting the marketization of hydrocarbon resources

that would exacerbate climate change.

As the scale

of the economy remains coupled to the quantity of

natural resources extracted from the environment

even in technologically advanced countries and as

technological progress is unlikely to deliver rapidly

enough all the eciency gains required for the world

to adopt a sustainable development path, higher

environmental taxes and new ways to oset their

regressive impact through redistribution and pre-

vent excessive hydrocarbon resources extraction will

probably become prominent policy concerns in de-

veloped and developing countries in the years ahead.

3 Redistributive policy trends

in a changing world

a. Public economics and

redistributive policies

e public economics approach formalized by

economists such as Pigou or Stiglitz (e.g. Atkinson

and Stiglitz 1980, Grenwald and Stiglitz 1986) sug-

gests that governments should intervene, including

through redistributive policies, whenever markets

fail, i.e. when markets undersupply or oversupply in

relation to what is considered desirable (e.g. the de-

velopment of strategic sectors, economic eciency,

social fairness, environmental sustainability). Mar-

ket failures are very common and occur in case of

imperfect competition, natural monopolies, asym-

metric information, merit goods, pure public goods

as well as positive/negative externalities.

In the wake of the Second World War, many gov-

ernments pursued such an approach to guide their

redistributive policies and were strongly involved in

managing the economy. Although most concerns

were progressively eclipsed by the overarching ob-

jective of pursuing economic growth, redistributive

policies were explicitly used to support industrial

policies, ensure the provision of public goods and

correct socially unacceptable outcomes through in-

come redistribution and, to a lesser extent, wealth re-

distribution.

In developing countries, import-sub-

stitution and export-promotion strategies adopted

after decolonization also required decisive policy

interventions, legitimizing the active role of govern-

ment in the economic sphere. e predominantly

rural and informal nature of their economy and po-

litical economy factors partly inherited from the co-

lonial era (Alvaredo and Atkinson, 2010), however,

prevented the development of redistributive policies

and institutions.

DESA WORKING PAPER NO. 139

b. Shrinking government for private

investment-led economic growth

Starting in the late 1970s, the rise of trickle-down

supply-side economic ideas strongly inuenced the

conceptualization of economic policy-making in

general and redistributive policies in particular. As

the clout of business interests and pro-market ideas

became increasingly well represented or even dom-

inant in many media, policy and academic circles,

government interventions were increasingly framed

in the public discourse as inecient market distor-

tions preventing the optimal allocation of factors

and income within domestic markets and across the

global factory. By contrast and as a corollary, markets

were portrayed as neutral and perfectly ecient, as if

they could be disembedded from the broader social

and political context. is shift in public discourse

in many countries consecrated the role of private

investment as the main driver of economic growth,

technological progress and human development and

further encouraged a reduced role for government

focusing on rule-setting and promoting good gov-

ernance.

e alleged inferior eciency of govern-

ment justied the downsizing of asset-based public

policy through extensive privatization of public in-

come-generating assets

as well as the downsizing

of income-based public policy induced by declining

tax revenue. Lower total government revenue went

hand in hand with lower expenditure and/or higher

public debt (gure 2). ese policies coincided with

the growing concentration of income-generating as-

sets in private hands,

weaker redistribution, rising

income inequality and unsustainable development.

Emphasis on private investment further promoted a

model of economic growth inducing larger cyclical

swings and a more unequal income distribution, be-

cause of its bias favouring prot-making and higher

income groups with the largest propensity to save

and invest. According to proponents of private in-

vestment-led economic growth, enhanced economic

eciency and incentives for prot-seeking would

necessarily generate additional economic gains,

which would trickle-down through market inter-

actions and benet the broader population, making

inecient government-intermediated redistribution

of income and wealth superuous.

e success of the neoliberal approach among poli-

cy-makers is related to political economy factors as

well as to its internal consistency and formal sim-

plicity rooted in highly reductionist micro-founded

economic models. It also stems from the widespread

use by policy-makers of purely economic measures

(e.g. corporate prots, GDP) as the ultimate but

ill-conceived benchmark of progress (Stiglitz, Sen

and Fitoussi, 2009, Costanza et al. 2012). Indeed,

theoretical economic models underpinning this ap-

proach largely ignore the broader macroeconomic,

social and environmental context. ey do not take

into account the role of income distribution in deter-

mining the level of domestic demand and economic

stability. ey also fail to acknowledge the existence

of unequal initial endowments as well as environ-

mental and other market failures that perpetuate un-

sustainable development, and which discriminatory

taxation could seek to correct. e shortcomings of

this approach, however, did not prevent it from gain-

ing inuence in many domestic and international

institutions.

c. From expenditure cuts to

increased social spending

On the expenditure side, policies inspired by

the public choice economic school fostered a re-

source-constrained approach to development, often

at the cost of fundamental human needs and so-

cio-economic rights (Sobhan 2010). is approach

entailed cutting public expenditure, including social

spending. roughout the 1980s and 1990s, many

governments privatized social services and intro-

duced user-fees for the public provision of education

and health services along with deepening credit

markets to ease the access of low income households

to the resources needed for their human capital for-

mation. Table 1 shows the general decline in pub-

lic expenditures during the 1980s and 1990s and

their subsequent rebound. Over that period public

expenditures and social spending decreased across

all regions, except in parts of Asia. e decline was

most pronounced in transition economies where the

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

political and economic collapse of the USSR in the

early 1990s was followed by the extensive privatiza-

tion of the means of production and social services,

and an abrupt fall in social spending.

Yet, those attempts at nancing human capital for-

mation through out-of-pocket household expendi-

ture adversely aected human capital investments by

low-income households (Birdsall et al. 2011). Instead

of enabling the economic gains created through a

supposedly more ecient economic organisation to

trickle-down to poorer and excluded social groups,

these policies readily undermined the capacity of

governments to redistribute those gains and further

degraded the ideal of social solidarity between in-

dividuals and generations. e negative eects of

this approach are most obvious in poorer countries

experiencing developmental diculties, but they are

increasingly visible in many richer countries, includ-

ing vulnerable democracies (Solt 2008; Bonica et al.

2013) where poverty and inequality are on the rise.

Over the years, popular discontent and criticism in

certain mainstream academic and policy circles have

become more vocal (e.g. Stiglitz 2003 and 2013).

e failures and the adverse social impact of those

policies prepared the way for a dierent approach at

the turn of the Millennium, giving stronger prior-

ity to extreme poverty reduction and public social

spending as a means to foster human and economic

development. is inexion in the prevailing ap-

proach to development also promoted the intro-

duction of social protection, especially in the form

of highly targeted conditional and non-conditional

cash transfers, which currently benet around 850

million people and positively contribute to reduce

income poverty and inequality (Cornia 2012).

e inexion in public social spending observed

since 2000 has its limitation, however. In many

developing regions, public expenditure as a share of

Table 1

Public expenditure by region, 1980-2011 (as a share of GDP)

Developed countries Sub-Saharan Africa

Latin America and

Caribbean

1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s

Total expenditure 43.3 40.3 40.2 27. 8 25.5 25.6 22 18.7 21.2

Social sector 23 22.7 24.6 7.2 7.2 8 9.1 8.2 9.1

Education 3.7 4.4 4.9 4.3 4.1 4.2 3.3 2.7 3.4

Health 4.2 4.4 5.4 1.8 1.8 2.2 2.4 1.5 1.8

Social

protection

15.1 13.9 14.3 1.1 1.3 1.6 3.4 3 3.9

East, South, and

South East Asia

Middle East and

North Africa

Transition economies

1980s 1990s 2000s 1980s 1990s 2000s 1980s 1990s 2000s

Total expenditure 24.9 23 24 34.2 29 28.7 31.9 27.8 25

Social sector 5.7 5.9 6.9 9.1 7.9 9.1 9.7 6.5 6.3

Education 3 3.1 3.3 4.1 4.4 4.1 1.3 2.3 1.9

Health 1.2 1.3 1.4 1.6 1.6 1.7 1 1.6 1.3

Social

protection

1.3 1.5 2.2 3.4 1.9 3.3 7.4 2.6 3.1

Source: Cornia (2013) WESS background paper. Note: Based on IFPRI SPEED database, which draws mainly on the IMF-GFS

data. Data generally refers to the expenditure of the central government and only seldom those of general government.

Social spending data does not include outlays on housing, nutrition, food subsidies and other less important items.

DESA WORKING PAPER NO. 139

GDP is still below its level in the 1980s. e scope

for budget reallocation is thus strictly constrained.

Furthermore, public social spending in developing

countries has not increased faster than in developed

countries, where public social spending represents

about 25 per cent of GDP, 3 to 4 times more than

in developing countries, where it hovered between

6.3 per cent of GDP in transition economies and

9.1 per cent of GDP in Latin America (table 1). e

very slight increase of public expenditures on educa-

tion and health (as a share of GDP) in some regions

since 2000, has led to an incremental convergence

between developed and developing countries.

Social protection expenditures, however, have not

converged. Despite some progress in the deployment

of social protection in developing countries over

the last decade, weaker public revenue mobiliza-

tion put a strain on the range of social protection

programmes that can be funded, as well as on their

quality and coverage, including through discrimi-

natory conditionalities imposed on potential social

protection recipients, especially elderly people and

women (Razavi et al. 2012).

In most developing regions, the approach to so-

cial protection remains resource-constrained and

pro-cyclical, but there are exceptions (see ILO 2010,

ADB 2012a and 2012b, UNCTAD 2012, UNRISD

2010). In Latin America, for instance, the rise of

left-leaning governments since 2000 facilitated the

progressive move towards a more rights-based ap-

proach to social spending, including social protec-

tion. Consequently, Latin America has become the

developing region that spends most on social protec-

tion and, incidentally, it is also the only region that

registered a steady and signicant decline in poverty

and income inequality since 2000 (gure 9). Over

the same period, income inequality kept rising in

Asia, which now appears as the most unequal region

in the world. is trend was largely driven by China,

even though some regional governments successfully

managed to leverage public asset ownership to foster

social protection and (more) equitable development

(Huang 2011, 2012 and Kohler 2014).

In summary, the rise in public social spending dis-

cussed above represented a positive step towards

rehabilitating progressive redistribution. Yet, the

lack of sucient resources for social spending across

most developing regions, its pro-cyclicality and vul-

nerability to exogenous factors in combination with

enduring poverty and rising inequality also clearly

20 40 50 60

Gini net (in points)

1970 1980 1990 2000 2010

Global average

Africa

Latin America and the Caribbean

Northern America

Asia Europe Oceania

Figure 9

Regional net Gini coefﬁcients (1970-2010)

Source: Source: Author. Note: Data

from SWIID (version 4.1) and UNPOP.

Regions are deﬁned according to

the UN deﬁnition (see http://unstats.

un.org/unsd/methods/m49/m49regin.

htm). Regional trends represent

population-weighted within-country

Gini coefﬁcients averaged at the

regional level, based on data that is

interpolated and extrapolated in order

to keep the pool of countries identical

over time. The assumption that income

inequality remained constant prior

to the ﬁrst observation/after the last

observation tends to ﬂatten regional

trends, especially in the 1970s. As data

is generally available very early on for

the most populous countries and all

variables are population-weighted, this

pitfall has only limited consequences.

Dotted lines indicate 95 per cent

conﬁdence intervals for net Gini

coefﬁcients.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

highlight a major limitation of the current approach.

By focusing on raising public social spending, but

neglecting to raise sucient revenues in an equitable

manner through progressive income and wealth tax-

ation, most countries failed to provide redistributive

policies with a solid backbone.

d. The neoliberal tax legacy and

regressive revenue mobilization

In developed countries, neoliberal tax reforms led

to a decline in tax revenue and to more regressive

tax structures, shifting the tax base away from pro-

gressive wealth and income taxes, especially capital

income taxes, towards regressive consumption taxes

weighting more heavily on lower income households.

Such reforms also found an echo in developing coun-

tries, where international donors and institutions,

such as the IMF and the World Bank, encouraged

many governments through repeated recommen-

dations and conditional loans to embrace the same

approach.

In the wake of trade liberalization, tax

reform in developing countries often emphasized

regressive consumption taxes as a means to replace

falling trade tax revenue, with mitigated results,

especially in low-income countries (Baunsgaard

and Keen 2010). Quick xes, such as the creation

of semi-autonomous revenue agencies (SARAs) fo-

cusing on value-added taxes, for instance, allowed to

rapidly raise revenue in some developing countries,

but they failed to do so in a progressive manner and

further locked-in administrative structures that were

not conducive to adequate and progressive revenue

mobilization and the development of modern inte-

grated public administrations, which are required

for state-building and sustainable development

(Prichard 2010).

As this tax legacy hampers resource mobilization,

the international community emphasized the need

for increasing ODA and nding elusive innovative

nancing sources (United Nations 2003, 2008). In

the meanwhile, the enduring weakness of tax ad-

ministrations is reected in the continuous need for

ODA, especially in LDCs, and resource-constrained

approaches to public social spending as well as in

the current debate on tax avoidance and evasion by

TNCs and HNWIs exploiting tax havens and o-

shore nancial centers to accumulate extreme wealth.

is sheds light on the inability of tax authorities of

least developed, developing and developed countries

to tax the richest elements of their societies accord-

ing to their ability to pay and raise sucient revenue

for sustainable development objectives.

Total revenue, including non-tax

revenue from natural resources

exploitation

roughout the 1980s and 1990s, total government

revenue (as a share of GDP) declined hand in hand

with cuts in public expenditures. Comparable reve-

nue data for developing countries is hardly available

prior to 1990, but table 2 captures the nal years of

a declining trend in total revenue, which bottomed

at the end of the 1990s across most regions before

picking up in the early 2000s. However, in devel-

oped countries and many parts of Asia, total revenue

at the end of the 2000s remained inferior to its level

20 years earlier. Despite this decline, total revenue

in developed countries amounted to 41.3 per cent of

GDP on average in 2010, up to twice as much as in

some other regions.

In developing regions such as Africa, Latin America,

Western Asia and in transition economies, rising

total revenue over the last decade partly resulted

from growing other (non-tax) revenue derived from

higher commodity prices, improved terms of trade,

increased exploitation of natural resources, as well

as from deliberate policies aiming at appropriating a

larger share of the commodity bonanza for govern-

ment. Western Asia has long been deriving a majority

of its revenue from oil exports, but Africa registered

the largest increase in other (non-tax) revenue over

the last decade, which rose on average by 2.6 GDP

points to 9.1 per cent of GDP around 2010, repre-

senting almost a third of total revenue.

e exploitation of natural resources generates

revenues accruing to governments in the form of

either prot of (partly) state-owned enterprises or

royalties and taxes paid by private companies. Rap-

idly growing demand from Asian markets and rising

DESA WORKING PAPER NO. 139

commodity prices over the last decade accelerated

the exploitation of natural resources, especially in

sub-Saharan Africa, where the share of the mining

and oil sector now weighs more than a quarter of

GDP in 9 countries, and about half of GDP in An-

gola, the Republic of Congo, Equatorial Guinea,

Gabon and Mauritania (Cornia 2013). Although

the most common range for royalty rates is around 5

per cent to 10 per cent, royalty rates were often well

below that common range in a number of African

countries in previous decades (Baunsgaard, 2001),

highlighting the extent to which natural resource

rents are privatized.

e most controversial attempt to socialize rents

from natural resource exploitation probably comes

from Latin America, where the Venezuelan Govern-

ment nearly doubled royalty payment in the oil sec-

tor from 16 per cent to 30 per cent in 2001. Strong

international reactions and criticism followed, but

did not fully prevent further countries from explor-

ing new paths challenging dominant economic wis-

dom about the best way to exploit natural resources

and attract foreign direct investment. Since 2006,

a number of countries in Latin America, Africa as

well as Australia have revised their scal regimes and

attempted to renegotiate contracts with TNCs in the

extractive industries with the objective of striking a

better balance between generating income from the

exploitation of natural resources with the help of

FDI, and appropriating a larger share of the derived

rents for the government.

Insufﬁcient tax revenue, its

composition and regressive tax

structures

Insuﬃcient tax revenue

Tax revenue followed a trend similar to total revenue,

except in developed countries, where tax revenue de-

clined steadily and only stabilized at an average level

amounting to 36 per cent of GDP in 2010. Despite

this decline, tax revenue as a share of GDP in de-

veloped countries still represented almost twice the

average prevailing in most developing regions. As

noted by the G20, about half of sub-Saharan African

countries still mobilise less than 17 per cent of their

GDP in tax revenue, below the minimum level of

20 per cent considered by the UN as necessary to

achieve the MDGs (G20 2011). Yet, as reported in

table 2, tax revenue as a share of GDP remains be-

low 20 per cent in many Asian and Latin American

countries, partly because of widespread subsistence

production, limited income, large informal sectors,

weak administrative capacity and political economy

factors maintaining tax revenue composition and tax

schedules regressive.

Regressive revenue composition

and tax schedules

e ratio of direct to indirect tax revenue reported

in table 2 is a good indicator of the progressivity/

regressivity of tax systems. Over the last decades,

this ratio steadily declined in developed countries

and in transition economies, driven by increasingly

regressive tax structures. In developed countries, top

marginal personal and corporate income tax rates

decreased on average by about 20 percentage points

in OECD countries between 1980 and 2012, while

the average value-added tax rate increased by about

8 percentage points (gure 10).

Neoliberal ideas were also inuential in Eastern

Europe and the former Soviet Union, where many

countries increased indirect taxes while adopting at

personal and corporate income tax rates promoted

by the OECD to strengthen prot incentives and

attract foreign direct investments. Flat income tax

rates represent the least progressive form of direct

income taxation and a complete turn away from the

ideal of vertical equality (i.e. higher income implies

higher taxes rates). While Baltic countries retained

the highest pre-reform at tax rate and increased the

no-tax area (thus making the tax schedule compara-

tively progressive), other countries adopted very low

at tax rates. Other countries (such as Serbia and

Hungary) also introduced a at tax, though sever-

al others (Czech Republic, Slovakia and Iceland),

which had initially adopted such an approach subse-

quently abandoned it (Keen et al. 2008).

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

By contrast, the ratio of direct to indirect tax revenue

slightly increased in developing regions. is increase

was mainly driven by corporate income tax revenue,

which rose by about 1 per cent of GDP across all

regions over the last 2 decades, a moderate increase

given the extensive privatization and the signicant

expansion of the private sector in many countries

during that period. Overall, regressive indirect taxes

are used so extensively that they still represent the

main source of government revenue, and direct tax

revenue continues to represent only a fraction of the

indirect tax revenue across all developing regions

and in transition economies (table 2).

Steps towards more progressive tax systems

e progressive or regressive nature of tax systems,

however, relies on a multitude of factors that are

imperfectly captured by the ratio of direct to in-

direct tax revenue, and some countries have taken

progressive steps during the last decade, especially

in Latin America. e new approach in that region

was inspired by the search for greater tax equity and

the principle of scal exchange, according to which

governments can raise taxes if, at the same time, they

raise they quantity and quality of services provided

to a broad spectrum of the population (Cornia 2014).

In Latin America, for instance, value-added tax rates

were mostly left unchanged, but excises on luxury

goods were increased in some countries. Many

countries placed more emphasis on progressive in-

come taxation. For instance, the 2007 Uruguayan

tax reform introduced ex-novo a progressive per-

sonal income tax, but only a at corporate income

tax. Other countries introduced a minimum tax on

rms to strengthen the collection of corporate in-

come tax (e.g. Mexico) or lowered the income per

capita at which the highest direct marginal tax rate

is applied. Most governments eliminated a long list

of exemptions, deductions and tax holidays benet-

ing TNCs, which had been introduced in the 1980s

and 1990s to attract foreign investments without

yielding the desired eects. Presumptive taxation

-60 -40 -20 0 20 40 60

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Japan

Korea, Republic of

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Portugal

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

Unweighted average

Top marginal personal income tax rate

PROGRESSIVE

2012

Rate CUT since 1980

-40 -20 0 20 40

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Japan

Korea, Republic of

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Portugal

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

Unweighted average

Corporate income tax rate

INCOME TAXES

2012 Rate CUT since 1980

0 5 10 15 20 25

Australia

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Japan

Korea, Republic of

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Portugal

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

Unweighted average

Value-added tax rate

REGRESSIVE CONSUMPTION TAX

1980 Rate INCREASE since 1980

Figure 10

The shift towards regressive tax structures in OECD countries (1980-2012)

Source: Author.

Note: OECD data. Data on corporate income tax rate is missing for Japan, the Republic of Korea, Luxembourg and Turkey in

1980. Data on the VAT tax rate is missing for the US, where its implementation varies across States.

DESA WORKING PAPER NO. 139

Table 2

Public revenue by region, 1991-2010 (as a share of GDP)

Developed countries

Africa

1991-5 1996-0 2001-5 2006 -10 1991-5 1996 -0 2001-5 2006-10

Total revenue and grants 43 42.7 41.4 41.3 22.1 21 23.8 28.2

Tax revenue 37.9 36.6 36 36 16.4 15.8 17.3 19.1

Indirect taxes 7.4 7. 8 7.8 7.7 9.7 9.4 9.1 9.6

- VAT 6.3 6.7 7 7.1 4.4 4.4 4.9 5.4

- Border tax 1.1 1.1 0.8 0.6 5.3 5 4.2 4.2

Direct taxes 12.9 12.3 12 12.2 4 4.2 5.1 6.2

- Personal income tax 10.2 9.2 8.8 8.7 1.5 1.8 2.8 2.8

- Corporate income tax 2.7 3.1 3.2 3.5 2.5 2.4 2.3 3.4

Social contributions 10.9 10.3 10.1 10 2 1.8 2.3 2.7

Other tax revenue 6.7 6.2 6.1 6.1 0.7 0.4 0.8 0.6

Other revenue 5.1 6.1 5.4 5.3 5.6 5.3 6.5 9.1

Memo item: Ratio of

direct to indirect taxes

1.74 1.58 1.54 1.58 0.41 0.45 0.56 0.65

Latin America

East, South and South-East Asia

1991-5 1996-0 2001-5 2006 -10 1991-5 1996 -0 2001-5 2006-10

Total revenue and grants 21.3 22.7 23.9 27. 3 20.9 19.6 19.2 20.7

Tax revenue 15.4 16.6 17.7 19.8 15.1 15 15.9 17.9

Indirect taxes 6.5 7 7.7 8.5 6.9 6.2 6.7 7

- VAT 4.7 5.4 6.4 7.3 4.5 4.5 5.2 5.6

- Border tax 1.8 1.6 1.3 1.2 2.4 1.7 1.5 1.4

Direct taxes 2.8 3.3 3.7 4.8 4.8 5.4 5.4 6.2

- Personal income tax 0.8 1.1 1.5 1.8 1.8 2.3 1.9 1.9

- Corporate income tax 2 2.2 2.2 3 3 3.1 3.5 4.3

Social contributions 2.9 2.8 2.8 3.1 0.7 1.2 2.2 3

Other tax revenue 3.2 3.5 3.5 3.4 2.7 2.2 1.6 1.7

Other revenue 5.9 6.1 6.3 7. 5 5.8 4.6 3.3 2.8

Memo item: Ratio of

direct to indirect taxes

0.43 0.47 0.48 0.56 0.7 0.87 0.81 0.89

MENA

Transition economies

1991-5 1996-0 2001-5 2006 -10 1991-5 1996 -0 2001-5 2006-10

Total revenue and grants 28.5 30.3 34.6 35.8 -- 28 29.9 34.2

Tax revenue 6.5 8 8.3 10.7 -- 27.2 26.9 29.9

Indirect taxes -- -- -- -- -- 10.9 12 14.1

- VAT -- -- -- -- -- 8.8 10.1 12.2

- Border tax -- -- -- -- -- 2.1 1.9 1.9

Direct taxes -- -- -- -- -- 4.9 5.1 6

- Personal income tax -- -- -- -- -- 2.2 1.8 2.7

- Corporate income tax -- -- -- -- -- 2.7 3.3 3.3

(cont’d)

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

was also strengthened due to the inability of the tax

administration to ascertain the assets and income of

potential taxpayers, and was levied on an estimate of

the person/rm’s income made by the tax authorities

on the basis of objective indicators of gross turnover

(e.g. assets, number of employees, electricity con-

sumption). e strengthening of presumptive taxa-

tion was accompanied by a simplication of taxation

of self-employed taxpayers. For instance, in 1998

Argentina tax authorities integrated social security

payments, income tax, minimum tax on assets and

value-added tax. Several Latin American countries

further introduced a surrogate tax on nancial trans-

actions yielding 0.3 to 1.9 per cent of GDP. Standard

theory suggests that this tax is distorting and leads

to nancial disintermediation. Yet, it can also be

seen as a second best policy instrument to tax wealth

and capital income, which otherwise would escape

taxation (Cornia 2014).

Declining environmental tax revenue

in developed countries

Several Latin American countries, such as Brazil,

Costa Rica and the Dominican Republic signi-

cantly increased environmental tax revenue between

2000 and 2011, collecting revenue in excess of 1.6 per

cent of GDP, the OECD average in 2011 (gure 11).

Other developing countries, including China, also

made progress during the last decade, but still collect

little revenue. More worryingly, environmental tax

revenue declined in most OECD countries, includ-

ing those with highest carbon emissions, such as the

United States, Canada, New Zealand or Australia,

mainly due to the failure of policy-makers to index

tax rates and keep up with ination. Several Euro-

pean countries

have created carbon taxes and the

United Kingdom even labelled it a “climate change

levy”. ese taxes, however, have yielded very little

revenue, not so much because of their deterring ef-

fect on carbon emitters, but because of the extremely

low tax rates imposed on carbon externalities.

As the level of natural resources nurturing the econ-

omy continues to grow globally,

many countries

refrain from levying more signicant environmental

taxes to avoid dealing with their impact on economic

growth and their redistributive implications. Fur-

thermore, exemptions are often granted to energy-in-

tensive industrial sectors to foster their international

competitiveness (OECD 2006, 2010). Instead of

being submitted to taxes redistributing revenue from

the private to the public sector, corporations have in-

creasingly been submitted to market-based solutions,

such as cap-and-trade or emissions trading systems

(ETS), which redistribute revenue among corpora-

tions only. e Kyoto Protocol laid the foundation

for implementing these solutions globally (Spash

2010), but only a minority of countries have com-

mitted to binding carbon emissions reduction tar-

gets.

Furthermore, the overly generous allowance

of free emission permits to corporations has kept

carbon pricing well below $50 per ton, is considered

by many climate experts as a minimum for enabling

structural economic transformations required for a

transition towards a sustainable development path.

(cont’d)

MENA

Transition economies

1991-5 1996-0 2001-5 2006 -10 1991-5 1996 -0 2001-5 2006-10

Social contributions 1 2.1 1.8 3.8 -- 8.5 8.6 9.2

Other tax revenue -- -- -- -- -- 2.9 1.2 0.6

Other revenue 22 22.2 26.3 25.1 -- 0.8 3 4.4

Memo item: Ratio of

direct to indirect taxes

-- -- -- -- -- 0.45 0.43 0.43

Source: Based on UNCTAD (TDR 2012). Note: Compulsory social security contributions paid to general government or

to social security funds under the effective control of government form an important part of government revenue and,

although they are not treated so in the SNA, many analysts consider the payments as being analogous to a tax on income

and so part of a country’s overall tax revenue.

DESA WORKING PAPER NO. 139

For instance, in the oldest and largest ETS estab-

lished by the European Union in 2005, carbon pric-

es mostly hovered between €10 and €15 during the

last 5 years, and even collapsed to €3 in early 2013.

Consequently, most environmental taxes are levied

in a regressive manner, weighting mostly on house-

holds rather than corporations, whose incentives are

only weakly aected by environmental redistributive

policies.

Dwindling recurrent net wealth taxes

e base of net wealth taxes encompasses all forms

of capital, including nancial capital concentrated

in the top centile. Net wealth best reects the abil-

ity to pay of individuals, which is supposed to be a

founding principle of tax collection, and it further

represents a considerable potential source of revenue

given that the value of accumulated capital stock is

worth several times that of GDP in most countries

(see capital stock to GDP ratios in gure 7). Conse-

quently, net wealth taxation is essential for reducing

inequality of outcome and enhancing equality of

opportunity. Yet, as reported in the last IMF Fiscal

Monitor (2013) oering a brief survey of wealth taxes

in general, only two small countries in the OECD

impose recurrent net wealth taxes generating more

than 1 per cent of GDP, Luxembourg and Switzer-

land (gure 12). Furthermore, many countries abol-

ished them over the last 15 years. Iceland and Spain

reintroduced them in the wake of the nancial crisis,

but recurrent net wealth taxes are generally inexist-

ent or very low.

Meanwhile, immovable property has become the

main base for wealth taxation in developed as well

as in some developing countries (Norregaard 2013)

and recurrent property taxes account for the bulk of

wealth tax revenue (gure 13), despite the fact that

immovable property only represents a fraction of

wealth holders’ net worth.

Revenue generated by

taxes on land and residential property is most sig-

nicant in Anglo-Saxon countries, where it almost

accounts for the totality of wealth tax revenue. Prop-

erty tax revenue generally accrues to local authorities

using it to fund local public goods, which is often

viewed as improving governance and accountability

(IMF 2013a). However, with the growing spatial

segregation and gerrymandering reinforcing the

-2 0 2 4 6

Revenue (as a share of GDP)

Australia

Austria

Belgium

Canada

Chile

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Israel

Italy

Japan

Korea

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Slovak Republic

Slovenia

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

OECD weighted average

Argentina

Brazil

China

Colombia

Costa Rica

Dominican Republic

Guatemala

India

Peru

South Africa

Uruguay

2000

Positive change in 2011

Negative change in 2011

Figure 11

Environmental tax revenue in OECD and some selected developing countries (2000-2011)

Source: Author.

Note: OECD data.

Environmental tax revenue

mainly arises from energy

and vehicle taxes, which are

closely related to carbon

emissions. Revenue from

environmental taxes does

thus not correspond to

a single category of tax

revenue in table 2, and splits

between value-added tax

and other tax revenue.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

clustering of communities according to their income

level, the use of property tax revenue to fund local

public goods also limits their progressivity, which

could be enhanced by central wealth redistribution.

Indeed, in presence of spatial segregation along in-

come lines, the ne line between local public goods

available to all social groups and club goods availa-

ble only to the most auent is becoming blurred.

Furthermore, the extent to which property taxes

weigh on renters and owners remains debated, cast-

ing further uncertainties concerning their progres-

sivity (Norregaard 2013).

Other wealth taxes arise from various sources, in-

cluding inheritance, gift and estate taxes, but the

bulk of other wealth tax revenue arises from taxes on

Figure 12

Wealth tax revenue composition in OECD countries (2011)

0 1 2 3 4

Wealth tax revenue (as a share of GDP)

Australia

Austria

Belgium

Canada

Chile

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Israel

Italy

Japan

Korea

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Slovak Republic

Slovenia

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

OECD

Recurrent net wealth tax Other wealth taxes Recurrent property tax

Source: Author.

Note: Based on

OECD data. Wealth

tax revenue enters

the category of

other tax revenue in

table 2.

Australia

Austria

Belgium

Canada

Chile

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Iceland

Ireland

Israel

Italy

Japan

Korea

Luxembourg

Mexico

Netherlands

New Zealand

Norway

Poland

Portugal

Slovak Republic

Slovenia

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

OECD

0 10080

4020

Recurrent immovable property tax (in per cent)

0 20 40 60 80

Recurrent net wealth tax (in per cent)

Net wealth vs. Immovable property

Shares in total wealth tax revenue (2011)

-60 -40 -20 0 20

40 60 80

Percentage points

Austria

Belgium

Canada

Denmark

Finland

France

Germany

Greece

Iceland

Ireland

Italy

Luxembourg

Netherlands

Norway

Spain

Sweden

Switzerland

Net wealth vs. Immovable property (1980-2011)

Change in wealth tax revenue composition

Recurrent immovable property tax

Recurrent net wealth tax

Figure 13

Rising immovable property tax revenue as a substitute for dwindling

net wealth tax revenue in OECD countries (1980-2011)

Source: Author.

Note: Based on

OECD data. Panel

B covers a limited

number of countries,

because many

countries never levied

any recurrent net

wealth taxes between

1980 and 2011 (i.e.

Australia, Japan,

Korea, Mexico, New

Zealand, Portugal,

Turkey, United

Kingdom and United

States) and data

is missing in 1980

for other countries

(i.e. Chile, Czech

Republic, Estonia,

Hungary, Israel,

Poland, Slovak

Republic, Slovenia).

DESA WORKING PAPER NO. 139

nancial and capital transactions, including various

taxes on immovable and other property sales, includ-

ing the well-known nancial transaction tax (FTT).

Proponents of the FTT view it as a kind of value-add-

ed tax on nancial consumption, which could rein

in nancial speculation, volatility and instability,

rather than a genuine wealth tax, but it undoubt-

edly is a progressive tax. FTT are in place in many

countries, though at very modest levels compared to

regular value-added taxes. Yet, its opponents argue

that the FTT is detrimental to actors engaging in

nancial transactions as well as to overall economic

eciency. In the wake of the global nancial crisis,

the idea of introducing a EU-wide FTT resurfaced.

In December 2012, 11 members of the EU, includ-

ing Germany, France, Italy and Spain, adopted a

plan for a FTT, which would rein in unproductive

speculation, encourage the nancial sector to engage

in more responsible activities geared towards the real

economy, and further raise about 35 billion euro in

tax revenue every year. However, no nal agreement

has so far been reached on the details of this plan

and nancial interests remain strongly opposed to

its implementation.

International tax abuses: harmful

tax competition, tax avoidance

and tax evasion

Progressive taxation has been undermined by do-

mestic reforms in many countries, and it was further

subverted by nance-led globalization promoting

harmful tax competition, tax avoidance and evasion

by TNCs and HNWIs. Tax abuses have existed for

a long time, but they have grown rapidly in recent

decades, supported by nancial liberalization, in-

formation technology progress and a global wealth

defence industry employing a growing number of

accountants, legal and nancial experts (Palan et al.

2010, Winters 2011).

Following a request by G7 leaders in 1996, devel-

oped countries acknowledged for the rst time that

tax competition could be harmful, pointing ngers

at tax havens leading the tax rate race-to-the-bottom

(OECD 1998). Tax havens are commonly understood

to be nancial conduits that, in exchange for a fee, use

their one principal asset, their sovereignty, to serve a

non-resident constituency by oering low or nil tax-

ation and secrecy provisions. Tax havens play an im-

portant role in the world economy by undermining

regulatory and taxation processes and skewing the

distribution of costs and benets of globalization in

favour of the wealthy few (Palan et al. 2010).

In the wake of the 1998 OECD report, tax havens

coordinated their reaction in an environment pro-

viding them more leverage, shifting the focus from

tax havens to oshore nancial centers (IMF 2000),

arguing that many oshore nancial centers (OFCs)

located in developed countries, such as Switzerland,

the United Kingdom or the United States, also of-

fered low taxes and secrecy to an even bigger con-

stituency, including residents and non-residents, and

that oering a preferential tax regime for nancial

activities was neither illegal nor dierent from any

other legitimate development strategy. After several

reports about the number of tax havens (IMF 2006,

2008), the IMF stopped monitoring this emerging

issue at the dawn of the nancial crisis.

Yet, the issue of tax abuses facilitated by tax havens

and OFCs has never been so prominent. Tax havens

alone account for around 50 per cent of all inter-

national banking lending and 30 per cent of the

world’s stock of foreign direct investment (Palan

2010). Private and corporate wealth stashed in tax

free zones may have reached between $20 trillion

and $32 trillion according to some estimates (e

Economist 16 February 2013, Tax Justice Network

2012)

and may continue expanding continuously

as long as tax abuses remain protable.

Unrecorded wealth of such magnitude represents a

major revenue loss for tax administration and fur-

ther biases the debate about income inequality. If

this unreported wealth earned a very modest rate of

return of just 3 per cent, and a modest tax of 30 per

cent imposed on this income would generate yearly

tax revenues of $190-280 billion – roughly twice

the amount OECD countries spend on all overseas

development assistance around the world.

e

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

imposition, a capital gains tax, an inheritance tax or

a recurrent net wealth tax would further boost this

gure considerably (Tax Justice Network 2012). It

would also contribute reducing income inequality

and possibly extreme wealth disparity in the longer

run. In the meanwhile, the growing magnitude of

unrecorded wealth and income ows further intro-

duces a downward bias in all widely used inequality

measures. Claims of declining inequality should

therefore be taken with caution.

e nancial crisis revealed that tax havens and

OFCs thriving on complexity, opaque networks and

arbitrage are inextricable from the shadow banking

nexus lying at the heart of the crisis (Palan and

Nesvetailova 2013). Facing scal diculties and

popular discontent, G20 leaders announced in April

2009 a crackdown on harmful tax competition and

nancial secrecy in order to protect their public -

nances and curb tax abuses.

Since then, dierent actors subsequently launched

several initiatives to tackle tax abuses. e Financial

Stability Board, for instance, initiated work on a

global Legal Entity Identier (LEI), a reference code

to uniquely identify a legally distinct entity that en-

gages in a nancial transaction. is could help track

all nancial ows, even in secrecy jurisdictions. In

2013, the G20 pledged to establish a system for the

automatic exchange of tax information.

In Febru-

ary 2014, it adopted a standard (OECD 2014) to be

implemented by G20 countries and possibly other

countries by the end of 2015.

e OECD further

developed an action plan to tackle base erosion and

prot shifting (BEPS) by TNCs, which aims to

make major reforms to international corporate tax-

ation. However, these initiatives are still under de-

velopment and even once proposals are put forward,

implementation will be challenging. In particular,

the capacity constraints of poorer countries will have

to be addressed in order to ensure that they are able

to participate, and ensure that they can contribute

eectively to reining in tax abuses and reducing ine-

quality (Moore 2014).

4 Towards a framework

enabling redistributive

policies for equity and

sustainable development

Redistributive policies and trends described in the

previous section are characterised by features that

partly derive from a neoliberal policy framework,

including a move away from asset-based public poli-

cies associated with a lack of concern for distribution

and environmental issues. Overall, this framework

resulted in weaker redistribution, mild poverty al-

leviation, and growing income inequality, wealth

concentration, tax abuses and environmental deg-

radation. In this context, renewed thinking about

opportunities to foster redistributive institutions and

policies through domestic reforms and international

cooperation is required in order to advance towards a

framework enabling redistributive policies for equity

and sustainable development.

Operationalizing redistributive policies in pursuit of

economic, social and environmental sustainability

represents a major intellectual and political challenge,

because it requires shifting away from the prevailing

development paradigm using private investment-led

economic growth as its ultimate but ill-conceived

benchmark of progress (Stiglitz, Sen and Fitoussi

2009, Costanza et al. 2012) towards a sustainable

development paradigm that better acknowledges the

importance of non-market interactions for collective

well-being and of planetary boundaries. Conse-

quently, such a shift requires challenging discourses

that deny the central role of equity for sustainable

development as well as reforming unfair or dysfunc-

tional economic and political governance processes

at the domestic and international level. e remain-

der of this section discusses 14 possible avenues.”

a. Redeﬁning equity and

development in sustainable terms

1. Focusing on asset inequality

not only income poverty

Equity is generally dened in terms of equality of

opportunity, rather than equality of outcome, but

DESA WORKING PAPER NO. 139

both are interdependent in practice. Redistributive

policies for reducing inequality generally combine

in-kind transfers with direct and indirect transfers.

e absence of wealth redistribution in many coun-

tries as a means for equalizing opportunities, how-

ever, signals the priority given to alleviating income

poverty over addressing underlying asset inequality.

Absent governance reforms enabling a broader use

of wealth redistribution to correct unequal asset en-

dowments, income poverty is likely to endure.

2. Enabling trade-offs between

economic growth, social equity and

environmental sustainability

Recent experiences of simultaneous rapid economic

growth and declining inequality, especially in Latin

America, and abundant older examples among Asian

Tigers (Jomo 2006) and developed countries, are a

testimony to the fallacy of the automatic trade-o

between economic eciency and equity assumed by

some economists, who uncritically extrapolate a mi-

cro-economic theoretical construct onto entire soci-

eties and countries (Stiglitz 2013, Ostry et al. 2014).

Yet, planetary boundaries and the need to reduce the

quantity of natural resources nurturing economic

activity to a sustainable steady-state level imply

limits to growth or according to some even negative

economic growth, especially in developed countries

(Costanza et al. 2012, Farley et al. 2013). A shift

away from the paradigm subordinating social and

environmental concerns to the overarching objective

of (private investment-led or demand-led) economic

growth is needed to enable sustainable development.

Indeed, while the individual or collective pursuit of

economic gains may generate public benets, they

also nurture economic, social and environmental

instability at the cost of vulnerable social groups and

future generations. Moving towards a sustainable

development paradigm enabling trade-os between

economic growth, social equity and environmental

sustainability therefore represents an urgent necessi-

ty, especially in developed countries with the highest

carbon footprint.

3. Redeﬁning the metrics of equity

and development

New metrics for equity and development are required

for operationalizing such a paradigm shift based on

informed policy decisions. GDP growth per capita is

frequently viewed as evidence of declining inequality

and sustainable development, even though it provides

information neither about equity nor about sustain-

able development. GDP per capita doesn’t contain

any information about income distribution and thus

requires making the implicit value judgment that the

marginal social utility of income is constant (e.g. an

extra $1 of income to rich person is worth as much

as an extra $1 of income to poor person). Synthetic

measures of income inequality, such as the Gini, are

suited for descriptive purposes, but their abstract

nature fails providing insight about the sources of

rising income inequality (labour or capital income),

which is important for devising policy solutions.

erefore, eorts should be undertaken to produce

new metrics able to highlight parameters that matter

for the understanding of the dynamics of inequality

(e.g. top income shares by source of income, wealth

shares, Palma income and wealth ratios) as well as

for economic justice and good governance. Similarly,

promoting sustainable development would be facil-

itated by the use of more relevant welfare metrics,

such as environmental-economic accounting. In case

where the valuation of environmental resources and

services through market mechanisms is not condu-

cive to sustainable development, alternative political

processes better suited for mediating collective deci-

sions involving complex ethical choices must be used

to value those resources and services (Spash 2007).

b. Building institutions

and designing policies

As acknowledged by the G20, revenue mobilization

was already insucient in many developing coun-

tries to fund progress towards MDGs (G20 2011),

and signicant additional eorts are likely to be

required for the post-2015 sustainable development

agenda if it is to aim at fully eradicating extreme

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

poverty and at addressing salient social and environ-

mental challenges, such as high income inequality

and the breach of planetary boundaries. Progress

towards equity and sustainable development is

therefore conditional on building institutions and

designing policies that enable stepping up revenue

mobilization along with progressive redistribution of

income and income-generating assets among indi-

viduals and, under specic conditions, also between

the private and public sector. Absent such progress,

development eorts will remain dependent on elu-

sive international development aid and/or regressive

debt-nancing (Hager 2013).

4. Modernizing tax administration for

increased and progressive tax revenue

mobilization

Increased and progressive mobilization of tax reve-

nue is essential, but some developing and least devel-

oped countries with large rural and informal sectors

still lack the administrative capacity to levy progres-

sive taxes. It rst requires building more developed

redistributive institutions, including competent tax

administrations able to handle complex information

and create domestic wealth registers, which is key for

progressive tax collection as well as economic anal-

ysis and planning (Chaudhry 1997). Such eorts

can further act as a catalyst for demands for greater

accountability, transparency and better governance,

which would strengthen the role of civil society and

state-building (Prichard 2009, Moore 2013). Devel-

opment assistance and capacity development in this

area is therefore key for remediating the need for

ODA in the longer term.

5. More progressive tax systems for

reducing inequality of outcome

In addition to addressing medium-term institutional

and administrative capacity constraints hamper-

ing revenue mobilization, tax reform should make

tax systems more progressive while simultaneously

strengthening incentives for sustainable production

and consumption. is requires shifting the tax base

from consumption and low incomes towards higher

incomes, which largely derive from capital income,

and especially towards wealth and environmental

externalities.

Flat indirect taxes are acknowledged to be regressive,

but they nevertheless represent a major source of

revenue in most developing countries (table 2) strug-

gling with high inequalities. Taxes on labour income

are often described as discouraging work, but high

marginal tax rates full the essential role of deterring

excessive compensation that has contributed to the

rising income share of the richest centile (gure 4).

To resorb rising income inequality, it may be required

to bring top marginal tax rates to their optimal level,

which some economists estimate at around 70 per

cent (Piketty et al. 2014). It is also urgent to close

deliberate loopholes and exemptions that signicant-

ly depress the eective tax rate imposed on capital

income and to combat tax avoidance and evasion in

ways that eectively suppress opportunities for HN-

WIs and TNCs to declare scal incomes and prots

representing only a fraction their economic income.

6. Shifting the tax base towards wealth

for enhancing equality of opportunity

Wealth best reects the ability to pay of individuals,

which is a founding principle of taxation. In most

countries, capital stock often represents a multiple

of annual income ows, which further keeps rising

along the capital accumulation process, representing

a signicant untapped tax base. As wealth is highly

concentrated in all countries, including developed

countries with more egalitarian wealth distribu-

tion (gure 7), capital income ows only accrue

to a wealthy few. Wealth concentration is thus not

only a driver of rising income inequality, but also

a foundational socio-economic structure sustaining

the reproduction of inequality over time. e neg-

ative structural weight of wealth concentration on

inequality across individuals and generations is all

the more determinant when the rate of economic

growth remains inferior to the after-tax return on

capital (r>g).

DESA WORKING PAPER NO. 139

Higher wealth taxes (especially recurrent net wealth

taxes and inheritance taxes) therefore represent the

tool of choice for redistributive policies aiming at

improving equality through increased and progres-

sive tax revenue mobilization. In addition, wealth

taxes have the virtue of encouraging work income

over rent income and to incentivize capital owners

to make productive investments, which will need to

be stepped up signicantly for achieving structur-

al economic transformations that are required for

bringing the global economy on a more sustainable

development path.

Wealth taxes currently only target immobile cap-

ital in most countries, mainly through residential

property taxes. Yet, extreme wealth is mainly accu-

mulated in mobile nancial assets, which are often

wrapped in opaque ownership structures hidden in

tax havens and OFCs, out of reach of domestic tax

administrations. While domestic regulators could

increase wealth taxes, including on mobile capital,

part of the targeted tax base will escape their author-

ity in absence of an internationally coordinated and

comprehensive crackdown on nancial secrecy and

harmful tax competition. As opportunities for tax

evasion and tax avoidance remain abundant, some

economists have stressed the advantages of imposing

a one-o wealth levy, whose costs to some wealth

owners may be inferior to the cost of relocating (Bach

et al. 2011, Bach 2012, Eichengreen 1991). However,

given the technical feasibility of implementing cap-

ital income and wealth taxes at the domestic and/

or global level in presence of nancial transparen-

cy, priority should be given to overcoming existing

political obstacles in the medium term. Ongoing

initiatives for the automatic exchange of information

(AEoI) and creating registries disclosing benecial

ownership of trusts and other shell structures are

thus of fundamental importance for enabling gov-

ernments to tap the signicant potential of wealth

as a tax base.

According to some estimates, imposing a 1 per cent

tax on the net wealth of the richest decile could raise

tax revenue amounting to one per cent of GDP in

many countries. Given the very high concentration

of wealth, simply raising this rate to 2 per cent on

the richest centile would already double the revenue

raised (IMF 2013a). However, in order to contain

extreme wealth and reduce inequality, tax rates

would have to keep pace with the growing returns

to wealth. As the greatest fortunes expand at an av-

erage rate of around 10 per cent or more, a global

annual tax on nancial capital would have to follow

a progressive schedule taxing net wealth at a rate

of at least 10 per cent above a certain threshold.

High wealth taxes may be the most ecient means

for gradually reducing extreme wealth inequality

that has re-emerged in some countries over the last

decades of nancial globalization.

7. Shifting the tax base towards

environmental externalities for

incentivizing sustainable production

and consumption, and shorter

value chains

e tax base should also decisively shift towards

environmental externalities, especially carbon

emissions strengthening global warming, without

depriving the poor from access to energy and oth-

er markets. Yet, at regressive environmental taxes

on energy and vehicles currently mostly weight on

poorer households. By contrast, corporations in de-

veloping and developed countries are often submit-

ted to special regimes, such as fossil fuel subsidies,

exemption from energy taxes or participation in

market-based solutions, which have so far kept the

price of carbon emissions too low for incentivizing

transformations in unsustainable production struc-

tures. In this context, unsustainable production and

consumption has increased in recent decades with

the rapid expansion of global but segmented value

chains fostering polluting merchandise transport

and the quantity of carbon emissions embedded in

nal consumer goods.

As long as the cost of trans-

port will not outweigh the prots arising from the

exploitation of cross-country labour cost dierential,

the expansion of global value chains will continue

to simultaneously stimulate economic growth and

increase the quantity of natural resources used in the

global economy.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

In order to promote more sustainable production

and consumption patterns

without burdening

poorer households, eorts should be made to levy

progressive environmental taxes tied to individual

consumption of some luxury goods and services that

are particularly harmful to the environment, such as

ights (i.e. progressive tax on ights based on the

cumulative number of miles already travelled by an

individual) or secondary residences (Casal 2012).

Furthermore, ways to implement border carbon taxes

should be investigated so as to factor environmental

costs into the price of internationally traded interme-

diate and nal goods. With the growing necessity to

signicantly reshape unsustainable production and

consumption behaviours and patterns, the ability of

higher taxes to send clearer and steadier signals across

the economy and to generate revenue that can be

recycled to achieve distributional objectives may be-

come more important than market-based solutions,

which have so far failed to generate price signals in-

ducing structural transformation (Spash 2010).

8. Socializing natural resource rents

and/or ownership to ensure

sustainable use and equitable access

for present and future generations

Examples of countries such as Norway and Ecuador

discussed in section 2b point 4. illustrate how gov-

ernments can attempt to leverage the socialization of

natural resource rents and ownership for equity and

sustainable development. Over the last decade, sev-

eral African and Latin American countries attempt-

ed to appropriate a larger share of natural resource

rents to the public sector by renegotiating contract

terms with corporations exploiting those resources.

In countries where transparency and good govern-

ance are not implemented, such initiatives may not

result in a fairer distribution beneting the broader

population (Darby 2013).

Similarly, public ownership of natural resources is no

panacea for sustainable development as governments

under nancial pressures or government prioritizing

economic growth may decide to exploit those resourc-

es for maximizing prot like private corporations do.

In a context where fossil fuel reserves are abundant

and global carbon emissions remain almost twice as

high as the quantity that would be compatible with

the 2010 Cancun Agreement of limiting climate

change to 2 degrees Celsius above pre-industrial

levels

some economists have argued in favour of

moderated mitigation eorts based on diering as-

sumptions about the economic opportunity cost of

making investments for the welfare of future gen-

erations.

Yet, as the courses of action suggested in

the scenarios most widely accepted in the economics

profession aim at minimizing opportunity costs

rather than targeting levels of natural resources use

and temperature increases considered by scientists

as compatible with environmental sustainability,

proposals for more drastic action have emerged.

e latter course of action requires that some fossil

fuel resources become perpetually stranded (Carbon

Tracker 2012). is could be achieved through ex-

propriations and partial compensations (Hayes 2014)

taking those resources out of the market and placing

them under the watch of public institutions, possibly

independent public trusts mandated by governments

to manage natural resources and commons in a sus-

tainable manner.

To be eective, the reshuing of

asset ownership would have to be accompanied by

governance reform.

9. Redistributing income-generating

assets for economic empowerment

and sustainable development

Conditions for implementing wealth transfers be-

tween social groups or between the private and

public sectors are always context-specic, but such

transfers may be necessary in some countries for pro-

moting equity and sustainable development. Redis-

tributing land property rights to small farmers, for

instance, can reduce income poverty and inequality

in a sustained manner and is further conducive to

the use of more sustainable agricultural methods.

Corporate ownership and governance structures in-

volving a diversity of stakeholders (e.g. cooperatives,

rms with multi-level ownership) can also empower

the poor (Sobhan 2010), give a voice to workers and

foster economic democracy (Dahl 1985, Hansmann

DESA WORKING PAPER NO. 139

1990, Williamson 2013) and strategies pursuing

collective interests instead of private prots alone.

In addition to the simple transfer of property rights

across private actors or towards the public sector, the

unbundling of property rights also opens avenues for

improving economic governance (Dugger 1987, Shi

and Liu 2012, Williamson et al. 2014).

10. Investing in people: a rights-based

approach to human development

A more equal distribution of income-generating as-

sets together with increased and progressive revenue

mobilization is essential for enabling a rights-based

approach considering human development as a fun-

damental right. e MDGs contributed to draw at-

tention on the central role of asset inequality in the

restricted sense of human capital as a determinant

of income poverty and slow economic development.

Increased public social spending improved access

to education and health services, and social protec-

tion programmes further shielded some of the most

vulnerable social groups from extreme poverty, but

the prevailing approach to human development in

many countries remains resource-constrained. is

particularly aects the coverage and quality of social

protection programmes, which still partly exclude or

discriminate against vulnerable social groups least

integrated in formal employment structures, such as

elderly people or women. Increased and progressive

revenue mobilization may facilitate a gradual political

transition towards a rights-based approach and con-

tribute progressing towards development objectives.

c. Fostering international cooperation

11. Bridging the gap with ODA for

public social spending and revenue

mobilization

Enhanced international cooperation is desirable on

several fronts. ODA commitments should be met to

accelerate progress towards the MDGs, and devel-

opment assistance for developing countries should

aim at empowering local actors. In countries most

reliant on foreign aid, development assistance should

contribute improving revenue mobilization capacity.

Such assistance is required for boosting the capacity

of weakly developed tax administration to handle

complex information and cross-check data from dif-

ferent sources in order to diversify the tax base away

from regressive consumption taxes towards more

progressive taxes (Prichard et al. 2012).

Development aid could also assist tax administra-

tion in auditing TNCs, whose transfer mispricing

schemes may cost developing countries up to $160

billion per year in foregone tax revenue, almost the

amount of annual ODA (Christian Aid 2009). Ca-

pacity building eorts for setting up the administra-

tive structures and procedures will also be required

for enabling developing countries to participate in

the automatic exchange of information (AEoI) that

is progressively being established at the international

level and to track costly tax abuses.

12. Promoting ﬁnancial transparency

to prevent tax abuses by HNWIs

and TNCs

A key ingredient to all tax abuses by HNWIs and

TNCs is nancial secrecy, which has become in-

creasingly indefensible, based on moral as well as

legal, political and economic arguments. Facing the

magnitude of wealth that remains out of reach of

tax authorities

and the impact of tax abuses on

the capacity of governments to uphold their human

rights obligations, the distinction between legal tax

avoidance and illegal tax evasion that is blurred by

secrecy and conicting rules across jurisdictions ap-

pears futile and indefensible (IBAHRI Task Force

2013). Financial opacity also played a key role in the

run up to the global nancial crisis. Indeed, many

special purpose vehicles amassing bad debt were of-

ten registered in secrecy havens, out of sight of tax

administration and of regulators (Palan et al. 2010,

Palan and Nesvetailova 2013).

Consequently, global governance bodies initiated

work for improving nancial transparency, which

requires the possibility for authorities to identify (i)

nancial ows as well as (ii) related parties. Recent-

ly, the Financial Stability Board established a Global

Legal Entity Identier Foundation (GLEIF) and is

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

working on the introduction of a legal entity iden-

tier (LEI). Condentiality of the reference data,

particularly ownership information, may represent a

hurdle in some countries.

e adoption of FATCA by the United States and

the concessions obtained from champions of nan-

cial secrecy, such as Luxembourg or Switzerland,

concerning the AEoI illustrated that legal domestic

condentiality provisions can be overcome under cer-

tain political circumstances.

is example encour-

aged similar EU-wide eorts and led world leaders to

formally pledge to establish a new global standard of

multilateral and automatic exchange of information,

as well as transparency of benecial ownership (G8

2013, G20 2013).

Taken together, the LEI and the

creation of a global register of benecial ownership

of trusts and other shell companies would enable a

useful AEoI between multilateral parties, and could

open up the possibility for a recurrent domestic or

global capital tax.

Currently, exchange of information still occurs

mostly on a bilateral basis and on request. e

multilateral Convention on Mutual Administrative

Assistance in Tax Matters (developed jointly by the

Council of Europe and the OECD) provides a ba-

sis for exchange of information on request without

the need for a bilateral double tax treaty, but AEoI

requires a supplementary agreement to establish

procedures. To remediate this shortcoming, the G20

asked for a common reporting model, including a

Model Competent Authority Agreement, and en-

dorsed a new Standard for Automatic Exchange of

Financial Account Information (OECD 2014) at the

G20 Finance Ministers and Central Bank Gover-

nors’ meeting in February 2014.

e potential non-universality of this initiative and

possible exemptions could drastically limit its im-

pact, however. Indeed, as has already been observed

in the past the non-universal automatic exchange of

banking information may result in the mere shift-

ing of funds towards jurisdictions not committed to

transparency (Johannesen and Zucman 2012) while

the non-exhaustive AEoI may foster the development

of para-nancial businesses performing similar types

of functions.

e interests of developing countries and nancial

TNCs, however, could converge to facilitate the

emergence of a uniform multilateral automatic in-

formation exchange system. Indeed, such a system

would positively aect the ability of the former to

address oshore tax evasion (Global Financial Integ-

rity 2012) and also avoid a situation in which the

latter are required to implement multiple dierent

systems in order to satisfy dierent sovereigns’ de-

mands (Grinberg 2013).

13. Addressing harmful tax

competition to combat tax avoidance

While nancial transparency may curtail widespread

tax evasion among HNWIs,

nancial transparen-

cy is not enough to address tax avoidance by TNCs

and HNWIs. TNCs represent the biggest demand

for tax avoidance, just before HNWIs (OECD

2009b), who incidentally also benet most from cor-

porate tax avoidance resulting in higher sharehold-

er payouts. As acknowledged by the IMF (2013),

“recognition that the international tax framework is

broken is long overdue. ough the amount is hard

to quantify, signicant revenue can also be gained

from reforming it. is is particularly important for

developing countries, given their greater reliance on

corporate taxation, with revenue from this taxation

often coming from a handful of multinationals”.

Tax abuses by TNCs have long perverted eorts of

sovereigns to avoid double taxation of TNCs prof-

its in dierent jurisdictions, resulting instead in

widespread double non-taxation. is has been an

issue for developing countries in the extractive sec-

tor, but also in other sectors.

Transfer mispricing

and prot shifting more generally has also become a

major issue in developed countries, where protable

TNCs paying little or no taxes in times of auster-

ity caused popular discontent followed by several

parliamentary inquiries.

Consequently, G20 lead-

ers acknowledged that passive tolerance of massive

corporate tax dodging undermines public trust in

the tax and political system and initiated work on

DESA WORKING PAPER NO. 139

Base Erosion and Prot Shifting (BEPS) through the

OECD Committee on Fiscal Aairs (CFA) towards

reform of the current international tax system.

Non-OECD G20 member countries were accepted

as full members of OECD working parties on BEPS,

and the OECD pledged to consult with developing

countries, but it is unlikely to prioritize them. In

October 2013, the UN Tax Committee decided to

set up a subcommittee on BEPS, which will provide

feedback to the OECD project from a developing

country perspective, as well as consider possible

remedies for BEPS that go beyond the remit of the

OECD project (Picciotto 2014).

In July 2013, the OECD presented an Action Plan

for addressing BEPS over the next 2 years. While

the OECD plan represents a step forward, its ap-

proach has proven fallible in the past, because it

aims at xing the current system without moving

away from the separate entity approach that lies at

the heart of harmful tax competition and aggressive

corporate tax avoidance. In the 1960s the OECD

already attempted to tighten rules to prevent base

erosion and prot shifting, based on the separate

entity approach. is attempt failed subsequently,

as illustrated by the double non-taxation of TNCs

exploiting the structural weakness of the separate

entity approach.

Continued reliance on the separate entity approach is

rooted in a willingness to treat TNCs as a multitude

of separate entities, despite their integrated govern-

ance structure and strategy dened by a single CEO.

is approach nds its origin in the rst model tax

treaties formulated by the League of Nations in 1928,

at a time when TNCs were a nascent phenomenon.

Today, TNCs intermediate about half of interna-

tional trade and a signicant share of foreign direct

investment and nancial transactions. By granting

TNCs the privilege to have their entities taxed sep-

arately, based on how a TNC decides to allocate its

prots across entities, the separate entity approach

creates incentives for countries to engage in harm-

ful tax competition, which stimulates aggressive tax

avoidance limited only by rules that can quickly be

circumvented. By contrast, alternatives based on

a single entity approach such as unitary taxation

(box 1), could tackle harmful tax competition and

tax avoidance at their core by acknowledging that

TNCs are single entities and anchoring taxation in

observable assets and variables, such as physical cap-

ital, labour and sales, instead of legal constructs and

articially priced intra-group transactions of goods,

services and intangibles for which there is often no

reference market.

14. Taxing mobile capital to reduce

the growing wealth gap and

international inequality

Ending nancial opacity and harmful tax competi-

tion is essential for enabling progressive taxation of

mobile capital and hidden wealth and contributing

to reduce the growing wealth gap and reduce inter-

national inequality. To a large extent, progress to-

wards these objectives is dependent on international

cooperation. ere are long-standing proposals for

the establishment of an international tax organiza-

tion, most notably from the UN High-level Panel

on Financing for Development (the Zedillo Com-

mission) in 2001. e Panel proposed the creation

of such an organization, with a mandate, not only

to compile and share tax information and monitor

tax developments, but also restrain tax competition

among countries and arbitrate country tax disputes

(United Nations, General Assembly, 2001). Howev-

er, this was not included in the Monterrey Consen-

sus, reecting resistance by the developed countries.

Equally, many countries would like the UN Tax

Committee to be enhanced to an inter-governmental

political body, but OECD countries persist in block-

ing eorts to achieve this upgrade. Consequently,

most reform eorts are undertaken on an ad hoc

basis by G20 countries with the assistance of the

OECD. e dominant role of the developed coun-

tries in international tax governance has resulted in a

primacy of their interests over developing countries.

Absent a proper institutional context for an inclu-

sive dialogue on international tax coordination,

unilateral initiatives are essential for shaking iner-

tia and attempting to initiate system-wide change.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

BOX 1

Unitary taxation as an alternative approach to taxing TNCs — how to neutralize capital mobility

for corporate taxation purposes?

Unitary taxation represents an approach for taxing TNCs

that diﬀers from the approach that is predominantly

used under the current regime in at least two signiﬁ-

cant ways. First, acknowledging the integrated nature

of value creation within TNCs whose global strategies

are deﬁned by CEOs, unitary taxation proposes to treat

every TNC as a single entity instead of considering its

related entities in diﬀerent jurisdictions as separate

entities, which are trading among themselves based on

the arm’s length principle (ALP).

Secondly, recognizing

the mobile nature of capital, unitary taxation proposes

to share the tax base generated by a TNC across juris-

dictions according to a negotiated apportionment for-

mula taking into account the geographical distribution

of relatively immobile factors (such as a TNC’s physical

assets, number of employed workers, payroll expendi-

tures and ﬁnal sales) instead of taxing TNCs according

to where their proﬁts are registered (Picciotto 2013).

This box brieﬂy explains how unitary taxation has been

implemented in various contexts and then summarizes

some of the main arguments opposing proponents and

critics of unitary taxation.

Unitary taxation has long been used in several federal

states, including Argentina, Canada, Switzerland and

the United States (Siu, Nalukwago et al. (2014). Appor-

tionment formulae adopted to distribute the corporate

tax base among sub-national jurisdictions take diﬀerent

forms in each of those countries. In Canada, for instance,

the corporate tax base is entirely attributed to source

provinces, because sales are omitted from the appor-

tionment formula, which is not the case in other coun-

tries. Formulae can further vary across economic sectors.

Switzerland, for instance, has special apportionment

formulae for eight economic sectors, such as transport

services or retail commerce that may require a formula

adapted to the speciﬁc nature of their economic activity.

Finally, sub-national jurisdictions can even use diﬀerent

formulas within a federal state. In the United States, for

instance, 36 out of 50 states have used their autonomy

in matters of taxation to deviate from the agreed on

“Massachussets formula”,

including 18 states that have

adopted a formula weighting sales only

in an attempt

to attract investments or to exploit the leverage deriv-

ing from their large consumer base. Deviations from

the “Massachussets formula” create some scope for

corporate tax avoidance (Spencer 2014b), but states that

shifted towards sales only formula also tend to impose

relatively higher corporate tax rates.

National UT systems are generally applied to companies’

proﬁts within the country on a water’s edge basis, but

they can be applied – even by a single territory within a

country – to worldwide proﬁts. This is done in Alaska, in

the oil, gas and pipeline sector, where unilateral imple-

mentation of unitary taxation on a worldwide basis has

recently been reaﬃrmed in the face of a corporate legal

challenge by the Alaskan Supreme Court

(Siu, Mintz et

al, 2014). Political obstacles may be greater: in California,

for example, the mandatory implementation of UT to

worldwide proﬁts was made optional in the mid-1990s

due to corporate and political pressures (Zain1994).

Unitary taxation is also appealing for deepening eco-

nomic integration at the regional level. After initial

resistance from some EU member States, a proposal for

a Common Consolidated Corporate Tax Base (CCCTB)

was adopted by the EU Commission in March 2011, and

approved (with some amendments) by the European

Parliament. The Economic and Social Committee has

given its opinion, and the proposal is under technical

examination by the European Council. Following com-

promise proposals produced by the three subsequent

EU Presidencies, technical work is proceeding on the

basis of an allocation proﬁts among EU countries ac-

cording to their physical assets (1/3), payroll expenses

(1/6), number of employees (1/6), and sales (1/3). This is

similar to formulae in federal countries, except for the

combination of payroll expenses with the number of

employees, reﬂecting wider disparities in wage levels

within the EU. However, regional adoption only covers

transactions occurring within each region: transactions

between related entities located outside the region

would still be based on ALP.

A UT system at the global level would require TNCs to

submit combined and country-by-country reporting

(cont’d)

DESA WORKING PAPER NO. 139

(CCBCR) to tax authorities in the countries where they

own related entities. The taxable base would then be

allocated among countries according to a negotiated

apportionment formula. Each government would then

apply its own corporate tax rate to its share of each

TNC’s proﬁts (allowing sectoral variations), TNCs hav-

ing the right of appeal to a public dispute resolution

mechanism. Applying the UT system globally would

thus require knowledge only of total proﬁts and the ge-

ographical distribution of the variables included in the

apportionment formula, none of which can be aﬀected

by the manipulation of notional prices for intra-ﬁrm

transactions.

In recent years, a debate has developed about the

strengths and weaknesses of unitary taxation. This de-

bate was primarily nurtured by the failure of the current

regime to prevent the growing shift of TNC proﬁts to

low-tax jurisdictions, which caused growing govern-

ment revenue loss as well as a loss of public respect for

the fairness of tax systems. In this context, unitary tax-

ation appears as an attractive alternative to the current

regime.

By disregarding the location of registered proﬁts for

deﬁning the tax base, unitary taxation would by deﬁni-

tion render proﬁt shifting across jurisdictions irrelevant

for tax purposes. It would thus weaken the bargaining

position of mobile capital and neutralize incentives for

Governments to engage in harmful tax competition.

Tax competition may still exist at the margin and lead

to the implementation of non-harmonized apportion-

ment formulae, like in the United States. Problematic

situations that have become increasingly common over

recent decades, where a low-tax jurisdiction with no

productive activity and no consumer base is entitled

to tax a disproportionate share of corporate proﬁts

generated in other countries, however, would not occur

anymore. Furthermore, as shifting physical assets, work-

ers and consumers is much more costly or impossible,

unitary taxation would markedly reduce the scope for

corporate tax avoidance according to some of its propo-

nents (Stiglitz 2014, Tax Justice Network 2013).

Critics sometimes argue that political and technical chal-

lenges in the implementation of unitary taxation can re-

sult in under/over taxation of TNCs. Those same critics,

however, also acknowledge that many tax disputes are

solved using formulary methods considering observable

factors and therefore recommend to combine certain el-

ements of the ALP and more extensive use of formulary

apportionment concepts, possibly including overlaying

both to verify the appropriateness of the ALP standard

(Spencer 2014a).

Several academics propose to view ALP and unitary

taxation as a continuum, where the continuous variable

would be the percentage to total proﬁt that is allocated

through a comparables analysis versus the percentage of

total proﬁt that is treated as a residual and allocated by a

non-comparables based formulary approach (Avi-Yonah

and Benshalom 2010, Kane 2014). This debate has so far

strengthened legitimacy to transfer pricing methods,

such as proﬁt splits, which are inspired by the spirit

of unitary taxation and tend to better suit developing

countries, but are implemented in the current regime,

with unitary taxation being an exception to the general

the arm’s length principle.

To summarize, a transition towards unitary taxation or

the adoption of transfer pricing methods inspired by the

spirit of unitary taxation are likely have the potential to

improve the collection corporate tax revenue. This addi-

tional revenue is bound to improve the position of cer-

tain governments. In presence of an international mech-

anism to redistribute this revenue, all countries could be

better oﬀ, but under current circumstances a minority of

countries would likely end up worse oﬀ as the outcome

for developed as well as developing countries would

depend on how the adopted formula weights factors

located in source and destination countries. Poor data

on the taxation of TNCs currently prevents empirical re-

search to determine with reasonable certainty whether

apportionment formulae, such as the formula adopt-

ed in the EU project, would beneﬁt most developing

countries or only developed countries. As reported in

a recent IMF study (2014) on “Spillovers in International

Corporate Taxation,” business argue that competition

using the weight attributed to immobile factors in the

apportionment formula may bear signiﬁcant risks and

may not beneﬁt developing countries. Civil society calls

for a more detailed examination of these possible risks

as a prerequisite for seriously assessing whether unitary

taxation represents a desirable alternative approach for

taxing TNCs.

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

Unilateral initiatives can have signicant impact,

as illustrated by the US FATCA legislation, which

inspired willingness to cooperate at the internation-

al level in order to crack down on nancial secrecy

enabling tax evasion by HNWIs. As explained in

box 1, developed and developing countries have the

possibility to uproot harmful tax competition on tax

rates by abandoning the prevailing separate entity

approach to taxing TNCs and adopting a single

entity approach to implement unitary taxation on a

worldwide basis as was done in several US States,

including California until 1996 and Alaska today.

5 Conclusion

is paper discussed challenges and opportunities

facing redistributive policies in support of sustaina-

ble development based on an asset-centred analytical

framework. It rst attempted to dene the potential

scope of redistributive policies, highlighting the im-

portance of asset distribution across private actors as

well as between the private and public sectors for eq-

uity and sustainable development. It then surveyed

major trends in redistributive policies during the last

three decades, before suggesting steps that may be

implemented at the domestic level in order to move

towards a framework enabling redistributive policies

for equity and sustainable development. It further

discussed ongoing coordination eorts at the in-

ternational level to promote nancial transparency,

which could facilitate tackling harmful tax competi-

tion and taxing mobile capital and nancial wealth.

Section 2 showed that the impact of redistributive

policies declined over the last 3 decades, contrib-

uting to a signicant increase in average with-

in-country income inequality at the global level. It

outlined an asset-centred analytical framework for

conceptualizing redistribution from a stock-ow

perspective (gure 1 and 2), stressing the importance

of income-generating assets as a determinant of in-

come inequality. It further highlighted the positive

association of higher public revenue (as a share of

GDP) and income inequality reduction, as well as

the key role of public social spending on human

development. It also pointed at the shortcomings

of approaching equality of opportunity exclusively

in terms of human capital without acknowledging

the fundamental role of income-generating assets,

such as land and industrial and nancial capital in

shaping opportunities available to individuals. It

briey discussed the possible role of environmental

taxes in containing unsustainable production and

consumption and the necessity to foster sustainable

use and equitable access to natural resources for

present and future generations, possibly by placing

privatized natural resources back under the control

of independent public institutions, such as mandat-

ed trusts in charge of managing natural commons in

the interest of the larger public.

Section 3 briey reviewed major trends in redis-

tributive policies over the last 3 decades, stressing

the modest pick up in public social spending at the

turn of the Millenium as well as the neoliberal tax

legacy holding back governments from using taxes

in a more discretionary manner to reduce inequal-

ity and promote sustainable development. More

specically, it pointed at the extensive privatization

of natural resource rents; the poorly progressive tax

revenue composition prevailing in many developing

countries compared to developed countries; the

generalized decline in environmental tax revenue

arising mostly from indirect energy taxes burdening

households, while the corporate sector often benets

from subsidies, exemptions or is submitted to market

solutions (emissions trading systems and osetting

mechanisms) that signicantly underprice produc-

tion carbon emissions. It also illustrated the wide-

spread attening of personal and corporate income

schedules and the near abandoning of net wealth

taxes in developed countries, along with the rising

magnitude of tax abuses, including harmful tax

competition, tax avoidance and tax evasion. Beyond

those general trends, this section also highlighted

positive developments, particularly in Latin Amer-

ica, where progress towards a rights-based approach

to human development and the search for greater tax

equity based on the principle of scal exchange led

to signicant inequality reduction during the last

decade.

DESA WORKING PAPER NO. 139

Section 4 proposed several steps formulated in gen-

eral terms for moving towards a framework enabling

redistributive policies for sustainable development. It

stressed the conceptual weakness of income poverty

reduction approaches ignoring the structural role of

asset inequality, especially wealth, as well as the need

to collect more relevant data on income and wealth

inequality and to move away from purely economic

metrics as a benchmark of progress in order to reduce

inequality and operationalize policies in support

of sustainable development. It then outlined some

key elements for building institutions and designing

policies enabling redistributive policies and further

stressed the need for governments to move from a re-

source-constrained approach to human development

towards a rights-based approach acknowledging the

most fundamental socio-economic rights of their

population. On the taxation side, it recommended

shifting the tax base towards environmental exter-

nalities arising from production and consumption,

including through a border carbon tax (instead of

ineectual emissions trading systems and osetting

mechanisms), to alter the unsustainable expansion

of global value chain, which thrive on international

labour cost dierential and tax avoidance oppor-

tunities, while stimulating international trade and

polluting merchandise transport. Shifting the tax

base towards net wealth, especially nancial capital,

which best reects the ability to pay, further repre-

sents the only means to eradicate extreme wealth and

reduce asset inequality underpinning enduring mass

income poverty. Wealth redistribution could further

be fostered by the transfer of income-generating as-

sets, such as land and industrial and nancial capital

and the unbundling of property rights. Land reform

and policies supporting cooperatives and other types

of institutional arrangements enabling economic

democracy therefore represent an important pillar

of wealth redistribution, along with the socialization

of natural resource rents and/or public ownership to

ensure a more equitable access to natural resources

for present and future generations.

Finally, the section also stressed the necessity of

stepping up ODA, while empowering local actors,

including in their eort to bolster weak tax admin-

istrations so as to become less dependent on external

funding and more accountable to citizens. It noted

that international cooperation is essential for com-

batting nancial secrecy and implementing reform

towards nancial transparency (e.g. LEI, AEoI, dis-

closure of benecial owners) enabling taxation of mo-

bile capital, which is key to tax justice and inequality

reduction. Political obstacles to the implementation

of such steps were not discussed, but would of course

need to be taken into consideration in their specic

national context. While progress under the umbrella

of global governance bodies regarding the reform of

the international nancial and tax system is slow and

far from warranted, the converging interests of many

developed and developing countries as well as nan-

cial TNCs could open the way to positive changes.

Additionally, ecient solutions to taxing mobile

corporate capital, such as unitary taxation (box 1),

could be implemented by developed and developing

countries.

As mentioned in the introduction and stressed in

the preceding sections, redistributive policies are an

essential policy tool for promoting equity and envi-

ronmental sustainability, but promoting sustainable

development requires much more encompassing re-

forms. e redistributive and other policy reforms

required for reducing inequality and bringing down

the use of natural resources nurturing the economy

to a sustainable steady-state level, however, cannot

be achieved under the prevailing paradigm that

uses private investment-led economic growth as its

ultimate but ill-conceived benchmark of progress.

e reforms that are needed require a dierent par-

adigm and political economy that acknowledges the

embeddedness of the economy in society and in the

environment, and which aims at maximizing human

well-being within planetary boundaries (Costanza et

al. 2012, Farley et al. 2013).

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

Notes

1 The terms equity, economic empowerment and

sustainable development all overlap to some extent.

While equity or equality is part of any denition of

sustainable development in the UN context (see for

instance the Brundtland denition (World Com-

mission On Environment and Development 1987)

or the draft focus areas for the SDGs (UN 2014)),

equity and economic empowerment overlap as

well. The latter concept is frequently used with

reference to women, but the draft focus areas of

the SDGs also discuss empowerment as a means to

reduce inequality and “promote the social, eco-

nomic and political inclusion of all, irrespective of

age, sex, disability, race, ethnicity, origin, religion

or economic or other status.” The development lit-

erature generally puts explicit emphasis on access

to assets and voice in economic decision-making

processes (Sobhan 2010). When referring to ad-

vanced economies, many authors have discussed

the issue of economic empowerment using a

different terminology and emphasized the concept

of economic democracy, which Dahl (1985) in his

book A Preface to Economic Democracy dened as

an alternative economic structure that would “help

to strengthen political equality and democracy by

reducing inequalities originating in the ownership

and control of rms.”

2 The commitment to private investment-led

economic growth is reected in the preambles of

leaders’declarations published after meetings of

global governance bodies. The Lough Erne leaders’

declaration (G8 2013), for instance, begins by stat-

ing that “private enterprise drives growth, reduces

poverty, and creates jobs and prosperity for people

around the world. Governments have a special re-

sponsibility to make proper rules and promote good

governance.”

3 While inequality in opportunities available to an in-

dividual results from pre-determined attributes over

which individuals have no control, such as gender,

ethnicity or family background (which is strongly

correlated with income-generating assets, such as

education and wealth), inequality in outcomes can

partly be attributed to personal responsibility and

effort (Brunori et al. 2013). Recent evidence based

on measures of opportunity seems to conrm the

hypothesis that inequality of opportunity matter

more than inequality of outcome as an explanatory

factor of structural inequality or wealth inequality.

This suggests that inequality of endowments at the

outset of history leads to unequal educational and

other opportunities, which in turn affected develop-

ment outcomes (Molina et al. 2013).

4 For instance, concentrated nancial wealth and

higher returns for richer investors strengthen rent

income and discourage labour, leading to economic

inefciency (Stiglitz and Dasgupta 1971, Piketty

2013).

5 According to the OECD (2009b) cumulative priva-

tisation proceeds in OECD countries between 2000

and 2007 are estimated to have amounted to at

least $487 billion, with latecomers to privatization

such as France, Italy and Germany accounting for

almost half of the total proceeds. According to the

World Bank privatization database, which covers

129 developing countries, total yearly privatiza-

tion proceeds increased continuously from less

than $10 billion before 1990 to $39 billion in 2000

and $132 billion in 2007. Between 1988 and 1999,

cumulative privatization proceeds amounted to

$360 billion compared to $452 between 2000 and

2007, with China, Brazil, the Russian Federation

and Argentina accounting for half of total proceeds

over the entire period. Available from: http://data.

worldbank.org/data-catalog/privatization-database

6 The Buffett Rule is part of a tax plan proposed by

President Barack Obama in 2011 that would apply

a minimum tax rate of 30 percent on individuals

making more than a million dollars a year. This tax

rate, however, only applies to a restricted tax base

including scal income, not economic income.

More details available from: http://www.white-

house.gov/sites/default/les/Buffett_Rule_Report_

Final.pdf

7 Social protection encompasses direct income

transfers funded through contributory (social

insurance) or non-contributory (social assistance)

programmes. While social insurance generally only

covers individuals active in the formal employ-

ment sector, social assistance potentially covers the

entire population and is fundamental for reducing

extreme poverty. Social protection includes trans-

fers such as pensions, work injury and invalidity

benets, sick pay, maternity leave, unemployment

benets, child and family allowances, (non-) con-

ditional cash transfers (CCT), food/cash for work,

but also subsidized goods, such as food or housing.

DESA WORKING PAPER NO. 139

8 A transparent example is given by the capital en-

dowment of universities in the United States. Infor-

mation about those endowments and their returns is

publicly available. In 2012, they ranged from $11.5

million for North Iowa Community College to about

$30 billion for Harvard. Records show that over the

period spanning from 1980 to 2010, returns on capi-

tal endowments inferior to $100 million averaged

6.2 per cent, while returns to endowments superior

to $20 billion (Harvard, Yale and Princeton) aver-

aged 10.2 per cent. The Forbes billionaires’ list,

which is published annually, also indicates larger

fortunes tend to grow faster than smaller fortunes.

This is true for fortunes accumulated over a lifetime

as well as for inherited wealth (even if the meth-

odology of the Forbes billionaires’ list tends to un-

derreport inherited wealth, which is more difcult

to identify than corporate executive success stories

reported in the media). See Piketty (2013).

9 The use of the term “neoliberal” is sometimes

criticized for being too vague (Boas and Gans-

Morse 2009). It is often used to make reference

to the Washington Consensus (Saad-Filho 2009)

or to globalization more generally (Deacon et al.

2007). In the context of this paper, the term neo-

liberal is used in relation to taxation policies that

increased inequality with the justication that it

would increase economic efciency and eventually

benet the poor. These tax policies are typically

characterized by slashes in wealth, corporate and

top personal income tax rates that benet wealthier

segments of the population, compensated by higher

value-added tax rates that penalize poorer seg-

ments, as well as prolonged inaction to combat tax

abuses by TNCs and HNWIs.

10 According to the International Energy Agency

(IEA), several G20 countries signicantly subsidize

fossil-fuel consumption. In 2011, subsidy rates were

estimated at 25.4 per cent in Argentina, 18.6 per

cent in India, 18.4 per cent in the Russian Federa-

tion, 16.6 per cent in Mexico, 4.7 per cent in South

Africa, 4.6 per cent in China, 0.3 per cent in Korea,

and nil in other G20 countries. Furthermore, subsi-

dization rates were above 50 per cent in Ecuador,

Venezuela, Algeria, Libya, Egypt, Gulf Coopera-

tion Council countries, Iraq, Iran, Turkmenistan and

Uzbekistan. See http://www.iea.org/subsidy/index.

html

11 Trade liberalization and the expansion of increas-

ingly segmented global value chains stimulated

international merchandise trade and transportation

services, which on average increase carbon emis-

sions of goods that are traded internationally by 50

per cent compared to locally traded goods (Cristea

et al. 2013). As internationally traded goods em-

body about 21 per cent of global carbon emissions

(Peters and Hertwich 2008), international trans-

portation of traded goods alone may contribute to

more than 7 per cent of global carbon emissions

(WESP 2013, Box II.1).

12 See Norwegian Ministry of Finance: http://www.

regjeringen.no/en/dep/fin/Selected-topics/taxes-

and-duties/bedriftsbeskatning/taxation-of-petro-

leum-activities.html?id=417318

13 The idea of mandating independent public institu-

tions to manage commons or public goods accord-

ing to specic criterias has already been imple-

mented in other areas, such as central banking, and

could be extended to the management of natural

resources. Costanza et al. (2013) provides refer-

ences and a list of such examples existing in the

United States, which includes land trusts, conserva-

tion trusts, surface water trusts, groundwater trusts,

air trusts, watershed trusts, the Buffalo Commons,

the Alaska Permanent Fund, etc. The paper also

discusses options at the national and global level

that have not been realized yet, such as the possi-

bility of having permanent national funds, common

tax credits or an Earth Atmospheric Trust.

14 According to Carbon Tracker (2014), consump-

tion of all known fossil fuel reserves (including

coal, gas and oil) would result in the emission of

3000 Gigatonnes of carbon dioxide (CO2) into the

atmosphere. In order to limit global warming to

2 degree Celsius over the period 2000-2050, it is

estimated that CO2 emissions should not exceed

886 Gigatonnes. Yet, between 2000 and 2011

alone, 321 Gigatonnes of CO2 or 36 per cent of the

2000-2050 CO2 budget have already been emit-

ted. Consequently, if global warming is to be kept

within bounds compatible with environmental sus-

tainability, a signicant share of the known fossil

fuel reserves will have to be perpetually stranded.

15 For instance, in the United States, the top marginal

income tax rate was raised from below 30 per cent

in 1920s to more than 90 per cent in 1945 before

declining gradually from 1964 onwards. Similarly,

estate/inheritance taxes were raised from about

20 per cent in the 1920s to more than 70 per cent

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

in the aftermath of the Great Depression before

declining gradually from the 1970s onwards. Top

income and inheritance tax rates display similar

patterns in the UK and many other developed coun-

tries.

16 See footnote 1.

17 See footnote 5.

18 See Forbes (4 March 2013) “Inside the 2013

Billionaires List: Facts and Figures”. The Forbes

Billionaires list now boasts 1426 names (with an

aggregate worth of $5.4 trillion) compared less

than 100 billionaires throughout the 1980s.

19 About 50 per cent of all adjustment loans provided

by the IMF and the World Bank between 1979 and

1989 included conditions relating to scal reforms,

and more than 50 per cent included conditions

relating to both trade reforms and the rationaliza-

tion of government nances, which had tax reform

elements (Webb and Shariff, 1992).

20 Abundant anecdotal evidence of contract renegotia-

tions that started after 2006 is reported in UNCTAD

TDR 2010 (Chapter V). Many of these renegotia-

tions resulted in positive, but rather minor revisions

of contract terms to the benet of governments. In

countries facing political instability, such as Mada-

gascar or the DRC, implementation was delayed.

Overall, governments in poor countries have very

low discount rates, which lead them to value highly

an immediate increase in revenue, even if the in-

crease is minor and jeopardizes the possibility of in-

creasing revenue in the future. This economic issue

is further often compounded by poor governance

and lack of transparency (Africa Progress Report

2013) that facilitate the privatization of natural re-

source rents. By contrast, richer countries with high-

er discount rates and more transparent governance

mechanisms are often in a position to socialize a

larger share of natural resource rents. Norway, for

instance, appropriates about 78 per cent of natural

resource (oil) rents to the public.

21 Denmark, Finland, Germany, Ireland, Italy, the

Netherlands, Norway, Slovenia, Sweden, Switzer-

land and the United Kingdom.

22 Since the beginning of the 20

century, total yearly

material extraction from the natural environment

increased nine fold, from 7 billion tonnes to 60 bil-

lion tonnes (Costanza et al. 2007).

23 Developing countries and major developed coun-

tries, such as Canada, Japan, New Zealand, the

Russian Federation and the United States are not

bound by any reduction targets

24 For an illustration of the near non-existence of

wealth taxes, see for instance the table in annex D4

of OECD (2009) “Engaging with High Net Worth

Individuals on Tax Compliance”, pages 103-6. This

table lists the main top personal income and wealth

tax rates in selected OECD countries. It illustrates

the variety of situations, but also highlights the

extent to which capital income can benet from

exemptions as well as the near disappearance of

wealth taxes. It should be noted that personal taxa-

tion does not apply to economic income, but only

to scal income, which sometimes only represents

a fraction of economic income, due to tax evasion

or tax avoidance schemes involving, for instance,

trusts and foundations hiding the identity of the

benecial owner. Available from: http://www.oecd-

ilibrary.org/docserver/download/2309081e.pdf?exp

ires=1408041876&id=id&accname=ocid195767&c

hecksum=E20DC530A6D3E2FD54C5FA70926E9

7C0

25 According to the IMF (2013a), the share of nan-

cial and non-nancial wealth, including immov-

able property, varies across countries depending

on local circumstances and accounting rules (e.g.

whether pensions are dened as nancial assets or

not). However, in many developed countries, the

share of nancial assets in the gross wealth held by

the top 10 per cent of households, which own more

between 70 per cent and 80 per cent of total wealth

in many countries (Davies et al. 2011, Piketty

2013), is above 50 per cent. Furthermore, this share

tends to increase more than proportionally with

wealth so that households belonging to the top 1

per cent or top 0.1 per cent hold an overwhelming

majority of their wealth in nancial assets (Piketty

2013). This highlights the bounded progressivity of

immovable property taxes.

26 The nancial wealth of HNWIs (households)

escaping taxation amounts to $7.6 trillion accord-

ing to Zucman (2014), but this estimate excludes

non-nancial wealth, such as real estate, yachts or

art collections that remain non-declared to scal

authorities in the residence country. It further ex-

cludes corporate nancial and non-nancial wealth

accumulated in shell companies through practices

irting with illegality. In 2012, the amount of in-

DESA WORKING PAPER NO. 139

denitely reinvested foreign earnings of American

transnational corporations alone waiting for a tax

holiday to repatriate prots was estimated at more

than $1.95 trillion (USPIRG 2013).

27 According to Global Financial Integrity (2012), ille-

gal capital outows linked to crime, corruption, and

tax evasion cost the developing world $858.8 billion

in 2010.

28 In 2013, members of the Development Assistance

Committee (DAC) of the OECD provided $135 bil-

lion in net ofcial development assistance (ODA),

representing 0.3 per cent of their combined gross

national income (GNI).

29 Tax annex to the Saint Petersburg G20 leaders’

declaration (September 2013).

30 Communiqué of the Meeting of the G20 Finance

Ministers and Central Bank Governors Sydney,

Australia, February 23, 2014. Available at: http://

www.g20.utoronto.ca/2014/2014-0223-nance.

html

31 Piketty (2013) proposes an exhaustive discussion

of this issue. See the brief and simplied discussion

on this topic around gure 7. For interesting cri-

tiques and views on why the neoclassical approach

is awed and the rate of return on capital (and

capital itself) cannot be measured in real terms, see

for instance Ackerman (2014), Galbraith (2014),

Harvey (2014), Palley (2014) Vernengo (2014) or

Nitzan and Bichler (2009).

32 See Piketty (2013) and also section 2b point 3 and

footnote 8.

33 See footnote 11.

34 Moving the global economy towards an environ-

mentally less unsustainable development path that

contains global warming within a range of 2 degree

Celsius requires that developed economies reduce

their carbon emissions by 80 per cent by 2050.

Such a reduction is impossible without signi-

cant transformations in production structures and

consumption behaviours, including in developing

countries.

35 See footnote 14.

36 The two most famous economic experts on climate

change are William Nordhaus and Nicholas Stern.

While Nordhaus (2008) has long emphasized

the excessive cost of immediate mitigation ac-

tion, based on a high discount rate (4.1 per cent)

strongly devaluating the welfare of future genera-

tion, Stern (2006) has argue in favour of rapid

mitigation efforts, based on a lower discount rate

(1.4 per cent). Small differences in discount rate

may appear as technical decisions, but they have

very signicant political and ethical implications.

Computing the discounted present value of $100 in

2100 illustrates this well: while Nordhaus values

those $100 at the end of the century at only $3.29

using a discount rate of 4.1, Stern values those

same $100 at the end of the century at $30.67,

almost 10 times more. In a situation where the

survival of humans were at stake, negative dis-

count rates could be used so as to put more value

on future generations than on the current one. It is

important to note, however, that the optimal course

of action proposed by both economists falls short

of reaching the 2010 Cancun Agreement climate

target. The scenarios proposed by Nordhaus and

Stern would allow atmospheric carbon concentra-

tion to peak at around 660 parts per million (ppm)

and 480 ppm, respectively, resulting in tempera-

ture increases of almost 4 degrees Celsius and 3

degrees Celsius, respectively (IPCC 2014). Given

the potentially catastrophic consequences of global

warming for biodiversity and humanity announced

by some natural scientists (Hansen 2009), targeting

such elevated temperature increases for the sake of

minimizing estimated economic opportunity costs

in an optimal scenario may appear as irresponsible

and ethically questionable (Foster et al. 2013).

37 See footnote 13.

38 See also the UNRISD project on Potential and

Limits of Social and Solidarity Economy: http://

www.unrisd.org/sseconf

39 Revenue losses arising from illicit capital ows are

estimated by the UN to amount to $50 billion per

year for Africa (United Nations Economic Com-

mission for Africa 2013), and may thus cost several

hundred billion per year to the developing world.

40 See discussion under point 3d point 3.

41 FATCA provisions would impose sanctions on

banks unwilling to automatically exchange infor-

mation about their US clients with their domestic

regulator and the US Internal Revenue Service,

REDISTRIBUTIVE POLICIES FOR SUSTAINABLE DEVELOPMENT: LOOKING AT THE ROLE OF ASSETS AND EQUITY

amounting to 30 per cent of the prot made on their

business in the United States.

42 The G8 Lough Lerne Declaration mentions 10

points, including the following: 1. Tax authori-

ties across the world should automatically share

information to ght the scourge of tax evasion. 2.

Countries should change rules that let companies

shift their prots across borders to avoid taxes, and

multinationals should report to tax authorities what

tax they pay where. 3. Companies should know

who really owns them and tax collectors and law

enforcers should be able to obtain this information

easily. 4. Developing countries should have the

information and capacity to collect the taxes owed

them – and other countries have a duty to help

them. 5. Extractive companies should report pay-

ments to all governments - and governments should

publish income from such companies. 6. Miner-

als should be sourced legitimately, not plundered

from conict zones. 7. Land transactions should be

transparent, respecting the property rights of local

communities.

43 The Economist recently reported on the rapid

development of an international network of Über-

warehouses allowing individuals to stock their

wealth formerly stored in banks in storage facilities

located in tax-free airport zones. While those zones

are intended for temporary transit of merchandise,

they are being expanded and transformed in luxury

warehouses in a growing number of countries,

including Switzerland, Luxembourg, Singapore and

many other OFCs (The Economist, 23 November

2013, “Über-warehouses for the ultra-rich”).

44 See the research project on “Secrecy for sale: in-

side the global offshore money maze” done by the

International Consortium of Investigative Journal-

ism that revealed the so-called “Offshore Leaks”.

Available: http:// http://www.icij.org/offshore

45 Transfer mispricing in the extractive sector causes

a signicant income loss for developing countries,

because of the importance of the oil and mining

sector in some developing economies, but mispric-

ing is often most blatant in other sectors, where

there are no reference market prices, unlike for

most commodities.

46 Parliamentary inquiries, e.g., “Offshore Prot Shift-

ing and the U.S. Tax Code -- Part 1 (Microsoft &

Hewlett-Packard)” or “Offshore Prot Shifting and

the U.S. Tax Code -- Part 2 (Apple Inc.)”, US Senate

Permanent Subcommittee on Investigations, 2012;

UK Parliament (2013). Tax Avoidance - Google.

London, House of Commons, Committee of Public

Accounts 9th Report 2013-14.

47 Tax annex to the Saint Petersburg G20 leaders’

declaration (September 2013).

48 The ALP is an international standard that compares

the transfer prices charged between related entities

with the price of similar transactions carried out

between independent entities at arm’s length. An

adjustment may be made to the extent that prots

of a related party differ from those that would be

agreed between independent entities in similar cir-

cumstances (denition taken from United Nations

(2013)

49 The “Massachusetts formula” places an equal

weight on three factors: group sales, payroll, and

property within each jurisdiction.

50 California, Colorado, Georgia, Illinois, Indiana,

Iowa, Maine, Michigan, Minnesota, Nebraska,

New Jersey, New York, Oregon, Pennsylvania,

South Carolina, Texas, Utah and Wisconsin.

51 See the range of state corporate income tax rate in

the United States : http://www.taxadmin.org/fta/

rate/corp_inc.pdf

52 Tesoro Corp v. Alaska, Case No. 6838, Alaska

Supreme Court (October 25, 2013).

53 Worldwide combined reporting is permitted or

required in certain circumstances in fourteen US

states (Alaska, California, Colorado, Idaho, Illinois,

Massachusetts, Montana, Nebraska, New Hamp-

shire, North Dakota, Utah, Vermont, West Virginia

and Wisconsin) and in the District of Columbia.

54 See the project of the International Consortium of

Investigative Journalists about the Luxembourg

Leaks. Available from: http://www.icij.org/project/

luxembourg-leaks.

55 The research project on the Unitary Taxation of

Transnational Corporations with Special Reference

to Developing Countries proposes many interesting

studies about this issue, which are available from:

http://www.ictd.ac/en/unitary-taxation-transna-

tional-corporations-special-reference-developing-

countries

DESA WORKING PAPER NO. 139

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