What is the issue with wealth concentration and how can we fix it?

Few economic debates today are as charged as that over wealth inequality. The concentration of fortunes at the very top has become a symbol of deeper anxieties: about fairness, growth, democracy, and power. Yet the discussion often mixes well-founded concerns with weaker claims and, in doing so, risks prescribing fixes that do more harm than good.

The core worries

The first concern is that economic growth accrues predominantly the rich while not helping the lower and middle incomes. In many advanced economies, wealth at the very top has grown markedly faster than median incomes, fueling the perception that prosperity accrues only to a narrow elite. For critics, this is evidence that the link between productivity and broad-based income gains has weakened, leaving large parts of the population excluded from economic progress.

A second worry is fiscal in that the tax system is less progressive than it appears. There are voices that argue that capital income is often taxed at lower rates than labor income, and complex financial arrangements can reduce effective tax burdens further. More troubling is tax evasion. Hidden offshore wealth is disproportionately used by the very rich, undermining both revenues and public trust in the tax system.

Third, there is the question of political influence. Large fortunes can be deployed to shape public debate, fund campaigns, or support lobbying efforts. Even in well-functioning democracies, the perception that policy is responsive to wealth rather than voters risks eroding legitimacy. The concern is not merely about individual actors, but about the broader balance between economic and political power.

Finally, wealth concentration is often linked to market structure. Highly profitable large firms, particularly in sectors with only few big players and high barriers to entry, can accumulate both market share and wealth. Such concentrated market power may translate into higher prices for consumers and weaker bargaining power for workers. In this view, inequality is not just an outcome, but a symptom of deeper distortions in how markets function.

Are these worries real?

Each concern contains an element of truth. But some of these concerns are also more contested than is often acknowledged. Take growth. The empirical literature is divided. Some studies suggest rising inequality dampens broad-based growth; others find weak or even opposite effects. Much depends on institutions, technology and policy. The claim that growth simply “no longer works” is, at best, an overstatement and it is, to this date, not clear how wealth inequality affects economic growth.

The same ambiguity applies to taxation. Estimates of how much the wealthy pay vary widely depending on definitions—whether one includes corporate taxes in calculating the tax burden or unrealized capital gains when defining income—and how it is measured. For example, many proponents of higher taxes on the rich argue that the wealthiest do not pay taxes on the increase in the value of their stocks because they do not sell them. Well, an income tax is designed to tax only realized income and any deviation from this comes with a host of legal and economic issues. What is beyond dispute, however, is that tax evasion is disproportionately concentrated among the wealthy. Hidden offshore assets erode the integrity of tax systems and deserve serious attention.

Less often discussed is a countervailing force: the social uses of wealth. Philanthropy by billionaires has financed universities, hospitals, scientific research, cultural institutions, and projects in developing countries on a vast scale—from endowments that sustain leading universities to global health initiatives that have saved millions of lives. None of this negates concerns about inequality. But it complicates the picture. Wealth can entrench power, but it can also fund public goods and do good in the world.

What, then, should be done?

Some proposals are both sensible and overdue. On top of that list is a concerted effort to curb tax evasion. International cooperation on transparency, stricter reporting standards and better enforcement can raise revenue while improving fairness. Similarly, closing tax loopholes—such as provisions that allow large capital gains to escape taxation at death (the so-called “step up at death”)—would strengthen the coherence of the tax base without introducing entirely new taxes. Note that the latter is an issue mainly in the U.S. No other major economy has such a tax provision.

Other ideas to increase taxes are more problematic. Calls for sharply higher personal income tax rates—70% or even 80%—underestimate how mobile capital and high-skilled individuals have become. They also ignore that corporate income is often taxed more than once: first at the firm level and again when distributed to shareholders. If countries increase tax rates, we see reduced investment. Likewise, raising personal income taxes decreases incentives for employees to work or people may move to other countries, who may be desperately looking for talents.

Wealth taxes are an even worse instrument, although they sound great at first glance. In theory, they target accumulated fortunes directly. In practice, they are difficult to administer and are highly distortionary. For example, valuing assets such as private businesses is a very challenging endeavor. Moreover, the rich may migrate to other jurisdictions, although proponents of wealth taxes claim that this will not happen. And even if people do not leave (which is naïve to believe), when expressing a wealth tax relative to income, seemingly small wealth tax rates of 3% to 4% can be quickly more than 100% of income. Such high tax burdens will lead to less investments and ultimately fewer jobs.

More fundamentally, it is not clear that taxing wealth addresses one of the key concerns about wealth inequality, namely the political influence. Reducing a billionaire’s fortune from €700bn to €300bn via wealth taxes would still leave them with ample resources to influence politics or markets. Hence, it is far from clear if the benefits from wealth taxes (higher tax revenues and lower fortunes) outweigh the costs (economic distortions, fewer jobs, and lower economic growth for everybody) as pressing problems such as political influence will be not fixed by a wealth tax.

If taxation alone cannot solve the problem, where should policymakers look?

First, regulation. If market power is a concern of accumulated wealth, antitrust policy is the appropriate tool. Strengthening competition authorities and scrutinizing the abuse of market dominance would do more to protect consumers and workers than broad-based wealth taxes. Labor-market institutions also matter: ensuring fair bargaining power and mobility can help workers share in economic gains. If you want to protect consumers, think about consumer protection laws, but not about wealth taxes.

Second, education. High-quality, accessible education remains the most reliable engine of upward mobility. If the worry is that economic success is becoming hereditary, expanding access to skills and human capital is essential. High quality and affordable (or even free) education can enable everybody to become an entrepreneur and to grow.

Third, healthcare. Affordable healthcare and basic security reduce individuals’ dependence on employers and increase economic dynamism. When people are not tied to jobs for fear of losing their healthcare coverage, they are more willing to innovate and start businesses or to move to another job.

Fourth, equity ownership. Encouraging broader participation in capital markets—through pension systems that invest in equities, for example—can spread the benefits of growth more widely.

Finally, institutions. A free press and robust democratic norms are the best safeguards against a potentially undue influence of wealth. Where these erode, inequality becomes more dangerous; where they are strong, it is manageable.

This broader perspective raises an uncomfortable question. Is wealth itself the problem—or the uses to which it is put? A society in which individuals accumulate vast fortunes while creating jobs and growth as well as contributing to public goods is not obviously unjust and unfair. Indeed, many large fortunes stem from entrepreneurship rather than inheritance. Even inherited wealth across multiple generations can sustain long-lived firms that provide stable and fair employment.

None of this is to deny that inequality can become excessive or corrosive. But policy should focus less on the existence of wealth than on its consequences: Are markets still competitive, or increasingly dominated by a few powerful firms? Do opportunities remain genuinely open? Are institutions fair and resilient? And, ultimately, is economic success translating into broader social progress, or becoming detached from it?

If the answer to some of these questions is no, one needs to think carefully about how to fix these things. The temptation to reach for high income taxes or wealth taxes is understandable. It may, however, be, in many cases, misguided. If one needs more tax revenues to invest in education and healthcare, wealth taxes and high income tax rates on capital may be tempting, but they create economic distortions and harm economic growth. A better start is to enforce existing taxes properly and to close clear loopholes. If policymakers need even more tax revenues to fund education and healthcare, the main levers are higher personal income tax for everyone and higher sales taxes. But this decision to increase such taxes should be in the hand of the voters.