The political and economic environment promoting growth in American wealth inequality

Abstract

Wealth inequality around the world is high and rising. In this paper, we argue that wealth inequality in the United States has been exacerbated by an environment favourable to the ultra-wealthy. Three distinctive changes in the economic and political landscape have fostered the increase in inequality. First, campaign finance law abruptly changed after the Citizens United Supreme Court decision. This decision gave the ultra-wealthy an outsized influence on American politics. Second, an increase in competition for executive talent drove CEO salaries to new heights. Demand increased for executives with general leadership skills as corporations grew larger, increasing competition in the market for executive talent. Third, because tax policy in the United States is subject to lobbying influences, those at the top of the wealth distribution are favoured, leading to further concentration in wealth. Our empirical results are consistent with the view that these changes resulted in an increase in disparity, shifting wealth from the 99% to the 1%.