Inefficient use of taxes (corruption) / Gini coefficient

1) Corruption leads to increase in government size

From a different view, based on median voter theory, the high level of inequality
leads to more corruption because it increases government size and in consequence
increases the level of corruption. Median voter theory notes that the policy and
income are determined by Median voter preference [Hotelling, 1929; Downs, 1957;
Black, 1958]. Based on this theory Alesina and Rodrik (1994) and Persson and
Tabellini(1994) discuss that countries with higher level of inequality have higher
tax rates and redistribution because median voter prefers higher tax rates and
redistribution when inequality increases.Corruption level increases with greater
government intervention because firms and rich people try to evade taxes and
regulations [Krueger, 1974; La Palombara, 1994; Shleifer and Vishny, 1998].
(http://www.ijeronline.com/documents/volumes/Vol%202%20issue%206/ijer20
110206ND(7).pdf)
2) Most middle-class jobs went offshore and migration of low-qualified workers
Regev and Wilson point out that most jobs being sent offshore are manufacturing
jobs, which have traditionally been a major source of employment for middle
income workers (2007).
http://www.neumann.edu/academics/divisions/business/journal/Review2012/
LeesonLindenfelser.pdf
3) Economic growth do more for reducing poverty than …
And history also shows that government programs and redistribution do a
surprisingly poor job of reducing poverty, especially when compared to economic
growth. For instance, at the start of the 20th century more than three-quarters of
Americans were poor by most definitions. By 1965, that had been reduced to less
than 20 percent. That happened not because of government redistribution but
because of the phenomenal growth of the American economy. More than $15
trillion in social welfare spending since then has done little to further reduce
poverty.

As we look for ways to reduce the deficit, we should avoid policies like raising
taxes that will discourage economic growth and job creation. Instead, we should
recognize that an ever-growing and more expensive government is a burden that
will ultimately reduce growth and make it harder for the poor to move up the
income ladder.

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3330

4) Misunderstandings in defining households

http://www.forbes.com/sites/merrillmatthews/2012/06/22/how-obamacare-
increases-income-inequality/2/

Evidence from a broad panel of countries shows little overall relation between income
inequality and rates of growth and investment. For growth, there is an indication that
inequality retards growth in poor countries but encourages growth in richer places.
Inequality does not significantly influence economic growth ( Abhijit Banerjee and Esther
Duflo of MIT)
 http://www.development.wne.uw.edu.pl/uploads/Courses/
jt_de_barroinequality.pdf /economist
5) Gary Becker, of the University of Chicago, thinks that inequality encourages people
to invest in their education
http://www.economist.com/node/21564421

6) That logic remains as powerful as ever. Economic freedom and better incentives
boosted growth in China, India and elsewhere. Sweden’s experience shows that
deregulation, lower taxes and fewer benefits increase economic dynamism even as
they reduce equality

In the most comprehensive analysis Anthony Atkinson and Salvatore Morelli of

Oxford University looked at financial crises in 25 countries over the past 100 years
and concluded that there was no systematic relationship between inequality and
macroeconomic disaster.
(ibid)
7) Professor Eric Uslander from University of Maryland argues that countries can have
plenty of corruption without inequality. The path may be indirect.
http://www.bsos.umd.edu/gvpt/uslaner/uslanersocialcapitalhandbookelgar.pdf
8) Amy Gardner researches American government workers
http://www.economist.com/blogs/democracyinamerica/2011/04/public-sector_pay
9) After financial crisis, managerial employees in public sectors earned way more
comparing to private sectors
http://trueeconomics.blogspot.co.uk/2009/11/economics-21112009-public-v-
private.html
10) The high average pay of District-based federal worker is 126.369 in 2009
(Timothy Carney)
http://www.economist.com/blogs/democracyinamerica/2011/10/income-inequality
11) Poverty is not as high as people consider it
The Census Bureau defines a family of four with income less than $23,021 as
impoverished. But a better portrait of poverty in America would count all government
benefits and tax credits, raising many households’ income considerably. An even
truer picture of deprivation would measure consumption
When adjusted for these flaws, the level of poverty is much lower, says a new paper by
economists Bruce D. Meyer at the University of Chicago and James X. Sullivan at the
University of Notre Dame. Instead of 15 percent, it is only 4 percent to 5 percent. And
instead of being higher than it was in 1980, poverty has declined by two-thirds

http://www.bloomberg.com/news/2012-09-20/poverty-inequality-aren-t-as-bad-as-
you-think-view.html

Spirit level critique

1) It focused on 23 richest nations and individual US states. It does npt consider
emerging economics
2) Richard Reeves in The Guardian called the book "a thorough-going attempt to
demonstrate scientifically the benefits of a smaller gap between rich and poor", but
said there were problems with the book's approach. "Drawing a line through a
series of data points signals nothing concrete about statistical significance [...]
since they do not provide any statistical analyses, this can't be verified.
3) Christopher Snowdon, an independent researcher and adjunct scholar at
the Democracy Institute,[26][27] published a book largely devoted to a critique
of The Spirit Level, entitled, The Spirit Level Delusion: Fact-checking the Left's New
Theory of Everything.[28] One of its central claims is that Wilkinson excludes
 certain countries from his data without justification, such as South Korea and
theCzech Republic. It also argues that Wilkinson and Pickett falsely claim the
existence of a scientific consensus when much of the literature disagrees with their
findings
4) Poverty is not as high as people consider it
The Census Bureau defines a family of four with income less than $23,021 as
impoverished. But a better portrait of poverty in America would count all
government benefits and tax credits, raising many households’ income
considerably. An even truer picture of deprivation would measure consumption
(how much a household spends on rent, autos, food and other items) rather than
income (how much a household admits to bringing home in earnings). Incomes
are unreliable because people are reluctant to reveal how much they make. They
are less reticent when asked if they have television sets, cars and air
conditioning, or if they eat out and go to movies.
When adjusted for these flaws, the level of poverty is much lower, says a new
paper by economists Bruce D. Meyer