5 minute read
Including ethical perspectives in mathematical formulae
Paolo Piacquadio, Professor of Applied Economics at HSG, has brought a research field that faded away over 50 years ago back to life. His aim is to give ethical viewpoints the place they deserve in economics. The project is being financed by the European Research Council’s Starting Grant.
“Value Judgements and Redistribution Policies (Valured)” is the name of the research project that is being financed by the European Research Council between 2019 and 2024. “The overriding goal of my research agenda is to grant ethical views an outstanding role in economics. I want to create clarity, transparency and pluralism when it comes to questions of the optimal policy in relation to value judgements and redistribution strategies,” explains Piacquadio, who is also director of the HSG Institute of Economics (FGN-HSG).
Ethical views in mathematical formulations
According to Piacquadio, he got interested in bridging the gap between a welfare economy and public economics early on in his research work. That was when he became aware of an approach that had been abandoned in the 1970s due to insurmountable technical difficulties. “I showed that these difficulties can be overcome and that a very wide range of ethical viewpoints can be accommodated in mathematical formulations,” says the economics professor.
According to Piacquadio, current mainstream economics neglects the wealth of ethical viewpoints and focuses on simple criteria that are in some cases arbitrary and disputed. “By contrast, my agenda consists of giving the ethical dimension the required scope in economics, as was proposed by British economist Sir Tony Atkinson, among others.” Thanks to the mapping approach – in other words, the graphical representation of information that is related – this can occur, he explains, without it being necessary to be committed to a specific ethical perspective. “Instead of demonstrating the political effects of an individual perspective, I argue that economists should portray a broad range of ethical perspectives and the corresponding political measures.”
The goal is to grant ethical views an outstanding role in economics.
By this, he explains, he means that it is not the job of economists to decide who deserves a transfer payment or additional state benefits. “It is, on the one hand, the task of philosophers to debate this and, on the other hand, of the people to form an opinion and vote accordingly in elections. And it is the job of political decision-makers to record these viewpoints and make suggestions.” However, according to Piacquadio, economists are in the privileged position of investigating the economic effects of political measures, in particular based on the diverse behaviour of the parties involved and their complex strategic interactions.
How should work and capital income be treated?
The public debate about the correct shaping of the redistribution policy has been an important controversy for a long time and recently gained momentum, Piacquadio explains. Unanswered questions are as follows: How should the tax burden be distributed among citizens? How should work and capital income be treated? How should the state tax or subsidise transfers between the generations? According to Piacquadio, several heads of state and government have taken up the topic of inequality. Barack Obama, the former president of the United States, termed increasing income inequality as the “defining challenge of our time”.
“The Valured project will contribute to this challenge through the fresh evaluation, identification and emphasising of the role of value judgements for redistribution policy,” Piacquadio states. It will, he continues, promote an understanding of the question of how society should shape redistribution systems in view of the preferences and needs of the individual, the increasing variation in salaries, and the lower mobility of income and assets between the generations.
Identifying the optimal system for redistribution
Through his project, Piacquadio hopes to clarify the ethical options of possible definitions of “rich” and “poor”, but he also wants to explain that individuals have different opinions of what “rich” and “poor” earn and how society should thus set priorities between them.
“For every decision on how the priorities between individuals should be set, I want to identify the optimal redistribution system, applied to areas like tax level and tax progression, a universal basic income, tax credits for earned income, subsidies and so on.”
He goes on to say that Valured proposes a paradigm shift in public economics through which value judgements would play a key role in the examination and shaping of redistribution measures. “The results could have a major influence on research and politics. The most direct contributions are to be found in the areas of the welfare economy, public economics and public finances. However, the conclusions are also applicable to political judgements in all areas of economics and will trigger fresh debate in political philosophy.”
In addition, he states, the results will be of fundamental significance for political decision-making. The relation between value judgements and redistribution policies will lend political proposals an ethical identity. “This will lead to citizens being more clearly informed about the reasons for a specific method of distribution. The transparency and accountability of politicians will be improved. This will enable the public to debate the most suitable value judgements to be supported.”
Paolo Piacquadio and his team examine various political questions in the project. “On the one hand, we look at how the tax burden can be distributed, taking account of the different preferences and needs of citizens. On the other hand, we consider how capital gains might be taxed if individuals have different risk preferences and may possibly be incorrectly informed about risks. Third, we analyse inheritance tax and its impacts on justice for parents and children.”
