How Inequality Policies Crashed Prosperity (Part II)
What We Can Do About It
In Part I, we explored how the current wave of inequality across much of the West was not inevitable. It was the result of deliberate policy choices: deregulation, austerity, shrinking safety nets, and a turning away from post-war principles of solidarity. The good news is that inequality is not destiny. It was built, and it can be unbuilt.
Reducing inequality isn’t a matter of tweaking things at the margins. It will take more than bold speeches or media-friendly slogans. It requires real policy change, the kind that confronts vested interests head-on. It demands political courage — and a public ready to question who benefits from the current arrangement.
Here are six concrete steps that would start to bend the curve back toward fairness.
Tax the Rich — But Properly This Time
Let’s start where inequality begins and ends: at the top.
If wealth is increasingly concentrated in a few hands, a progressive, modernised tax system is the most immediate corrective tool.
Across many advanced economies, including in Europe, tax codes are riddled with exemptions, distortions, and flat-rate systems that benefit asset holders far more than workers. Capital gains are often taxed far below labour income. Inheritance loopholes allow dynastic wealth to flourish. Wealth taxes — where they exist at all — are often anaemic or easy to evade.
Figure 1: Top marginal income tax rates before and after modelled progressive reforms in ten advanced economies. The “after” scenario reflects policy changes such as higher top rates, capital gains equalization, and closing loopholes to address wealth concentration.
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This chart visualises the impact of comprehensive progressive tax reforms on top marginal income tax rates across major Western countries. The left side shows current rates, which have fallen dramatically in recent decades, contributing to rising inequality and wealth concentration at the top. The right side models the effect of reforms—such as increasing top rates, aligning capital gains with income tax, and closing loopholes—demonstrating how policy can restore balance to the tax system. The steeper slopes highlight the scale of change possible when governments prioritize broad-based prosperity over narrow interests, underscoring that inequality is a policy choice, not an inevitability.
Basis for the "After" Numbers
Economic Research & Policy Proposals:
Leading economists like Peter Diamond and Emmanuel Saez have argued that the optimal top marginal tax rate for high earners could be as high as 70–73%, maximizing revenue without harming growth12. In the U.S., proposals from lawmakers such as Alexandria Ocasio-Cortez have suggested a 70% rate on very high incomes, while some European countries have previously had rates above 70%12.International Benchmarks:
Some countries, such as Sweden and Denmark, have historically maintained top rates above 55%1. France temporarily implemented a 75% rate for ultra-high earners in the early 2010s1. These historical precedents inform what is considered plausible for ambitious reform.Policy Scenario Modelling:
Think tanks and policy institutes often model increases in top rates as part of progressive tax reform packages, typically raising rates by 10–20 percentage points above current levels, and sometimes more for countries with lower starting points32.Country-Specific Considerations:
The "after" rates in your table vary to reflect both the ambition of the reform and the country’s starting point. For example, Denmark and Finland already have high rates, so a modelled reform might push them to 75%. Countries with lower current rates, like the U.S. or Canada, are modelled moving to 45–55% (or 50% for the U.S.), which is in line with leading policy proposals and international experience
A serious shift means:
Increasing top marginal income tax rates
Equalising capital gains and income tax
Introducing or strengthening net wealth taxes
Ending abusive tax residency regimes for the ultra-rich
Coordinating across the EU to stop tax competition between member states
This is purely about balance. If record levels of wealth are being created, why is prosperity not reaching the majority?
Rebuild Labour Power
One of the most underappreciated drivers of inequality in Europe over the last generation has been the weakening of labour. Union membership has declined. Collective bargaining coverage has narrowed. Temporary, part-time, and gig-based jobs have exploded. And with that decline in worker power, wages have stagnated.
The solution? Give labour a voice again.
That includes repealing restrictive labour laws, encouraging sector-wide bargaining agreements, supporting trade union capacity, and ensuring rights and protections extend to platform and precarious workers.
Countries like Sweden, Austria, and Belgium show what happens when labour has a seat at the table: lower wage dispersion, stronger social mobility, and less polarised societies.
When workers have bargaining power, inequality shrinks. It’s not a mystery — it’s maths.
Expand and Universalise Public Services
Inequality isn’t just about what you earn — it’s about what you can access. Universal services remain the great leveller.
Many parts of Europe still maintain strong public services, but they are under pressure. Public hospitals face staff shortages. Housing stock is declining. Early childhood education is expensive or inaccessible in many countries. And tuition fees are creeping upward even in places where they were once unthinkable.
Governments should treat public services not as costs but as core infrastructure:
Universal childcare
Well-funded public education and mental health
Affordable public housing
Free or low-cost higher education
Modernised public transport in underserved areas
When access to a good life depends on private wealth, inequality becomes destiny. Universal services break that cycle.
Fix the Housing Trap
Nowhere is inequality more visible than in housing. Across the EU, from Lisbon to Prague to Berlin, housing costs are outpacing incomes. For property owners, it’s a windfall. For everyone else, it’s economic quicksand.
Figure 2: Rent-to-income ratios before and after modelled housing reforms in ten Western capital cities. Lower percentages after reforms indicate improved affordability for renters.
This chart illustrates the potential impact of ambitious housing reforms—such as rent caps, expanded public and cooperative housing, and anti-speculation measures—on rental affordability across ten major Western capitals. The left side shows current rent-to-income ratios, with many cities like Berlin, London, and Paris far exceeding the 30% affordability threshold. The right side models how these ratios could fall if comprehensive reforms were enacted, bringing housing costs closer to sustainable levels for ordinary residents. The visual underscores that the housing crisis is not inevitable: with targeted policies, cities can shift from a trajectory of rising rent burdens to one of greater economic security and social inclusion.
Basis for the After Numbers: Housing Affordability Reforms
The “after” numbers in the housing affordability chart represent modelled improvements in rent-to-income ratios that could be achieved through a package of ambitious housing policy reforms. These modelled outcomes are informed by real-world evidence, policy analysis, and international best practices:
Empirical Evidence from Rent Controls and Anti-Speculation Measures:
Research shows that well-designed rent caps and anti-speculation policies can significantly reduce rent burdens for tenants, especially in overheated urban markets. For example, studies from Catalonia and Boston demonstrate that rent controls can lower average rents and reduce price dispersion, making housing more affordable for a broader segment of the population1. Anti-speculation measures in cities like Guangzhou have produced rapid, double-digit percentage declines in housing prices following implementation, easing affordability pressures for renters and buyers alike2.Expansion of Public, Cooperative, and Social Housing:
European policy proposals and youth advocacy platforms call for large-scale investment in public, cooperative, and social housing, with targets of at least 50% of new affordable housing funds dedicated to these sectors3. Expanding the supply of non-market housing has a proven track record of lowering average rents and stabilizing housing costs, especially for low- and middle-income households.EU and National Affordable Housing Strategies:
The European Commission’s Affordable Housing Plan and related national strategies focus on increasing housing supply, reducing building costs, and supporting long-term affordability through public investment and regulatory reforms. These initiatives aim to bring rent-to-income ratios closer to the 25–30% range considered affordable by international standards4.Modelling Assumptions:
The “after” numbers in the chart assume a coordinated package of reforms: implementing effective rent caps, expanding public and cooperative housing, clamping down on speculative investment, and reforming tax policies that favour property over productivity. The modelled reductions in rent-to-income ratios (typically a 15–25% improvement) are consistent with the scale of change observed in cities and countries that have enacted similar reforms.
We need to get serious about housing as a human right:
Expand public and cooperative housing models
Cap excessive rent increases
Clamp down on speculation and Airbnb-style short lets
Reform tax systems that favour property over productivity
The housing market should serve society — not the other way around.
Tame Corporate Power and Market Concentration
Today’s billionaires are not just entrepreneurs — they’re often monopolists. Corporate concentration in key industries — from tech and finance to retail and agriculture — has soared.
What does that mean for inequality? It means fewer firms setting wages, fewer alternatives for workers, and wealth extraction rather than value creation.
Regulators need to rediscover their bite:
Enforce competition law rigorously
Break up monopolies or prevent mega-mergers
End sweetheart tax deals with multinationals
Bring transparency to lobbying and corporate influence
When the economy becomes a casino for rent-seeking, society pays the price.
Reclaim the Narrative
Ultimately, inequality is about values.
The dominant narrative in too much of the West still blames the poor for their circumstances and celebrates extreme wealth as a sign of merit. The result? A politics of division — and distraction.
We need to reframe the conversation:
Public spending is not a burden — it’s a shared investment
Taxes are not theft — they are the price of civilisation
Social protection is not dependency — it’s dignity
Inequality is not natural — it is engineered
The aim is not to pull anyone down, but to lift everyone up.
A Final Thought
Across much of Europe and the West, inequality is no longer just about economics. It’s about democratic legitimacy. When people feel the rules are rigged and the game is over before it starts, they lose faith in institutions. That’s the gateway to extremism, scapegoating, and social fracture.
But it doesn’t have to be that way.
We have the tools. We have the data. We even have the historical examples. What’s missing is the political resolve — and the collective push from below to make justice more than just a slogan.
Inequality was built. And it can be unbuilt.
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References
Diamond, P., & Saez, E. (2011). The case for a progressive tax: from basic research to policy recommendations. Journal of Economic Perspectives, 25(4), 165–190. https://pubs.aeaweb.org/doi/pdf/10.1257/jep.25.4.165
International Labour Organization (ILO). (2022). Trade Union Density and Collective Bargaining Coverage Report. Retrieved June 2025 from https://www.ilo.org/global/research/global-reports/global-wage-report/2022
Organisation for Economic Co‑operation and Development (OECD). (2022). Income Distribution Database. https://www.oecd.org/social/income-distribution-database.htm
Organisation for Economic Co‑operation and Development (OECD). (2023). Risks That Matter: Public Attitudes Toward Redistribution. https://www.oecd.org/els/soc/Risks-That-Matter-Redistribution.pdf
Organisation for Economic Co‑operation and Development (OECD). (2023). Effective Tax Rates and Tax Expenditure: Revenue Statistics 2023. https://www.oecd.org/tax/tax-policy/revenue-statistics-publications.htm
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Piketty, T., Saez, E., & Stantcheva, S. (2014). Optimal taxation of top labor incomes: a tale of three elasticities. American Economic Journal: Economic Policy, 6(1), 230–271. https://pubs.aeaweb.org/doi/pdf/10.1257/pol.6.1.230
Québec’s Autorité des marchés financiers. (2021). Housing measures and rent-control effectiveness: a comparative study. Retrieved June 2025 from https://lautorite.qc.ca/en/publications/housing-policy-study
Reeves, R., & Venator, J. (2022). The consequences of corporate concentration: Competition policy for the 21st century. Brookings Institution. https://www.brookings.edu/research/corporate-concentration-competition-policy
Statistiska centralbyrån [Statistics Sweden]. (2021). Labour market and income distribution statistics. Retrieved June 2025 from https://www.scb.se/en/finding-statistics/statistics-by-subject-area/labour-market
Wolff, E. N. (2024). Household wealth trends in the United States, 1962 to 2023. Levy Economics Institute Working Paper, No. 1058. https://www.levyinstitute.org/publications/household-wealth-trends-in-the-us