Chung-Hua Institution for Economic Research (中華經濟研究院) president Wu Chung-shu (吳中書) said yesterday that steady economic expansion would be a more important factor than government subsidies in improving the nation’s widening wealth gap in the long term.
Wu shared his thoughts in a conference on income distribution yesterday in Taipei, which was organized by the Council for Economic Planning and Development.
“Looking at various indicators from the past few years, the nation’s wealth gap has indeed been increasing,” Wu said.
In 2009, the average annual disposable income of the richest families in Taiwan was 6.19 times that of the poorest — the third-highest level on record — implying that the nation’s wealth gap remained wide, data provided by the Directorate-General of Budget, Accounting and Statistics (DGBAS) showed.
The transfer payment method— non-compensatory payments to individuals for social security benefits — has been widely adopted by the government to remedy income disparity in the short term, Wu said.
However, Wu said that may not be a panacea for the nation’s income distribution in the long run. Although the subsidy may help lower the wealth gap in the short run, such costs could put pressure on the nation’s finances, which have been deteriorating over the recent years, Wu said.
Wu said this may squeeze the government’s investments in public infrastructure, further hampering the nation’s economic development. Meanwhile, most of the subsidy programs currently applied by the government are calculated on a pro-rata basis, which may not provide enough to help poorer citizens, Wu added.
Maintaining steady economic expansion would be a more effective way to close the wealth gap, Wu said.
Based on historical data, the nation’s wealth gap widened when the economy slowed down significantly— such as in 2001 and in 2009 — Wu said, citing data from the DGBAS.