Inequality, Debt and Taxation: The Perverse Relation between the Productive and the Non-Productive Assets of the Economy

The explosion of the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed reestablishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain the different view that the financial crisis and the ensuing real crisis have roots in the strong increase in incomes inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non-productive assets of the economy. In this context the way out of the crisis is re-establishing the right distributive conditions: which cannot be obtained by a policy aimed at relieving the weight of private debts but calls for a redistribution through taxes on the incomes of non-productive sectors, according to a fine tuning that should prevent from excessive taxations transforming positive into negative effects.