Friday, December 16, 2011

Acemoglu on inequality, institutions, and growth

Thanks to a post on Greg Mankiw's blog, I found this great interview article with Daron Acemoglu on inequality, institutions, and economic growth.  As you might imagine, he tells the story that institutions like property rights, majority rule and minority rights, etc. are central to the story of growth, more central in his view than geography, health, religion, and so on. But he's very neatly fit it all into a convincing narrative about recent (since 1980) trends in income inequality.

I particularly liked his insight about high marginal tax rates on high earners being a disincentive to engage in (legal and reported) rent-seeking behavior that doesn't really add value. I hadn't heard it before and it makes some amount of sense. Is there a case for marginal tax rates that rise at first, then fall for middle and upper-class earners, and then rise again strongly at the very top? Where exactly in the income distribution would such rent-seeking be most likely?