Do Billionaires Cause Wealth Inequality?

Recent political campaigning has targeted billionaires for more taxation and some pundits have suggested that having fewer billionaires will decrease wealth inequality. But do billionaires cause inequality? Is there a correlation between the existence of billionaires and wealth inequality? We find out.

Billionaires and Wealth Inequality Study

A recent study completed by Jan Svejnar and Sutirtha Bagchi took a closer look at the relationship between wealth inequality and billionaires. Their study specifically explored the link between economic growth and wealth inequality. As economic growth decreases so does per capita GDP which in turn increases inequality. In this way, they were able to explore the connection between having billionaires and how they influence inequality.

Preliminary Findings

In their initial findings they did indeed find that, across the world, an increase in the number of billionaires does increase inequality via suppression of economic growth. By their estimate, an increase of 3.7% wealth inequality would suppress real GDP growth per capita by 0.5% or roughly one-quarter of a country’s per capita growth.

A More Detailed Analysis

However, when Svejnar and Bagchi categorized the results by political connectedness of the billionaires and well-known measures of county corruption and the results were revealing.  Measures and indexes used were the International Country Risk Guide of the University of Maryland and the Transparency International Corruption Perceptions Index.

Results

The two found that suppressed growth only occurred in countries that were high in corruption. Countries that were not high in corruption saw no suppression in economic growth per capita GDP.  The U.S. tends to rank in the very top ranks of both of these lists year over year.

Worldwide, billionaires do cause inequality. But in countries that rank well in known corruption indices, they have no impact on wealth inequality. In the context of these countries’ billionaires do not cause inequity. Calls to remove billionaires or tax them aggressively with the purpose of removing their wealth will have no impact on the level of wealth inequality in these countries.

Sources

https://www.sciencedirect.com/science/article/pii/S0147596715000505