Instead of corporate tax cuts, give money to the poor: Nobel laureate Abhijit Banerjee

In conversation: Abhijit Banerjee, centre, and Esther Duflo at the launch of their book on January 3, 2010. Photo: Twitter/@juggernautbooks  

Instead of cutting corporate taxes, the government should put money in the hands of poorer people who will spend it immediately and kick-start demand in the economy, said Economics Nobel Prize winner Abhijit Banerjee.

Also read: Who is Abhijit Banerjee, one of the winners of 2019 Economics Nobel?

He was speaking at the launch of his latest book, Good Economics for Hard Times, on Friday, along with his co-author and fellow prize winner Esther Duflo.

Withnnual budget coming up in less than a month’s time, and the country in the midst of an economic crisis, Dr. Banerjee was asked what the Finance Minister should be doing in order to boost demand and revive the economy. “I would say, first, no more cuts in corporate taxes,” he said, to loud applause from a packed audience.

He noted that the corporate sector is not acting to boost demand. “The clear fact is that the corporate sector is actually sitting on cash and is not investing. Why is it not investing? Because every sign of a demand problem is there You talk to people from the corporate sector, they say, right now, there is no market for what I need to sell,” said Dr. Banerjee.

“We have to get the demand side going. And for that, you need to get the money into the hands of the people who will spend it now,” he said.

Dr. Duflo added that this government’s efforts to ensure that the poor have bank accounts would make it possible to implement such a strategy. Small steps to support the poor could have an “enormous return on investment” as there is a long-term payoff, she said, adding that “it’s much better than a fiscal stimulus.”

Weighing in on the Citizenship (Amendment) Act, Dr. Banerjee said: “We should be worried about creating structures of the state, power structures which make you so vulnerable, you can be extorted in many ways.”

The MIT economists, who won the Nobel along with Michael Kremer, were honoured for their work in using randomised control trials to test the impact of small policy interventions so that there is clear evidence of what has impact and brings about the desired outcome.

Several experiments

Dr. Banerjee reiterated that their research has shown that giving regular amounts of money to poor people can have high impact, and does not serve to make them more lazy as is popular wisdom. “We found that giving people money makes them more enthusiastic and more productive,” he said, outlining several experiments in India and Africa which showed this.

He played a key role in the conceptualisation of the basic income scheme NYAY, which was a highlight of the Congress’s electoral platform in the run-up to the 2019 Lok Sabha polls. The scheme proposed to provide the poorest Indians with a monthly income of ₹6000.

Governance nightmare

Dr. Banerjee also weighed in on the Citizenship (Amendment) Act. Apart from the issue of religious discrimination, he noted that the Act could create a governance nightmare which would be especially devastating to the poor. “I’m worried about abuses of power. We should be worried about creating structures of the state, power structures which make you so vulnerable, you can be extorted in many ways,” he said, noting that local officials in border district would have the power to extort large sums from people whose lives hang in the balance. “The governance problem is a frightening one,” he said.

Abhijit Banerjee, Esther Duflo react after winning Nobel Prize

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Printable version | Jan 22, 2022 8:36:35 PM |

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