‘If you want to change the world, be an economist’: a conversation with Dr Arun Advani

When talking to experts in any field, one question, more than anything, comes to mind for me: what got them involved in the first place? For Dr Arun Advani, one of Britain’s most renowned tax economists and an Associate Professor at Warwick, it was gaping global inequalities that fuelled his passion for economics.

Born to Indian immigrants but brought up in Britain, disparities in living standards between the two countries were plain to see: “I think my parents worked hard. But however hard they would have worked in India, we would never have had the same levels of income if I grew up where they had grown up.”

Having seen these vast global inequalities of opportunity first-hand, it’s unsurprising that Advani’s first calling was development economics. Although, after receiving an undergraduate degree from Cambridge, two things stopped him from exploring that path further:

“I sort of concluded … you can’t be a good development economist without spending a lot of time in low-income countries. And I didn’t want to spend my life travelling around that much. I wanted to be close to home and where my family are … And the other thing that I concluded was that there were lots of problems closer to home.”

Following a stint in environmental taxation at the Institute for Fiscal Studies (IFS), he moved from thinking about global inequality to analysing inequality in the UK. And that’s when his longest, closest collaborator entered the picture.

Just last year, Advani won a ‘Young Economists Award’ from the International Institute of Public Finance

At an academic conference, Advani was live tweeting a session about inequality measurement. That caught the eye of Dr Andy Summers, an Associate Professor of Law at LSE interested in the legal aspects of measuring inequality. The two met for coffee in London, and the rest is history. Over the years, Advani and Summers have built a full-blown arsenal of research focusing on both how to better measure inequality and design taxes on wealth and top incomes.

Advani’s academic career has bloomed. Alongside his professorship at Warwick, he’s currently a research fellow at the IFS, a Research Associate at Warwick’s very own CAGE Research Centre, and was a Commissioner for the Wealth Tax Commission – which investigated the possibility of implementing such a tax in the UK. He’s also earned several plaudits. Just last year, he, along with Summers and economist David Burgherr, won a ‘Young Economists Award’ from the International Institute of Public Finance. That was for their paper about the effects of a recent UK tax reform on migration by the super-rich.

His area of speciality is arguably more relevant than ever. With the UK’s tax burden having risen to its highest level since the 1940s and only set to rise further, policymakers across the political divide have highlighted a pressing need for tax reform. The Resolution Foundation has argued that higher taxes have not been accompanied by an increase in tax quality, with poorly designed taxes hindering Britain’s ability to tackle both stagnant productivity and vast inequalities. Advani himself points out that “there are so many … problems with existing taxes on wealth”, with the system generating both inequality and massive disincentives to invest.

Both Rishi Sunak and Keir Starmer are saying Britons can have their cake and eat it

Despite these problems with the tax system, what’s striking is that neither major UK political party has committed to large-scale tax reform. Nor have they explained how they intend to raise the sums necessary to increase funding for Britain’s cadaverous public services.

Advani argues neither the Conservatives nor Labour are being explicit about the trade-offs surrounding tax, or, to put it bluntly, both Rishi Sunak and Keir Starmer are saying Britons can have their cake and eat it. Either our tax burden rises to maintain or expand public services, or we tolerate deteriorating state provision. Unfortunately, politics is getting in the way of either party clearly articulating which path the UK should take:

“We haven’t been willing to have that conversation because it’s never a popular thing to say … any party saying that we should increase taxation is going to have everyone else say ‘look, these guys are going to be bad for you because you’re going to have to pay more.’”

In the debate surrounding taxes, a policy that has become increasingly prominent is the ‘wealth tax’, a levy on the net worth of the super-rich. Given Advani’s work for the Wealth Tax Commission, I asked him for his thoughts on the idea.

The case for a one-off wealth tax is ‘much weaker’ than it used to be

The Commission focused on two types of wealth taxation: a ‘one-off wealth tax’ and an ‘annual wealth tax’. The difference between the two is how frequently tax authorities measure an individual’s net worth. For one-off wealth taxes, net worth is only measured once, so even if an individual’s wealth levels change, their tax liability doesn’t. For annual wealth taxes, net worth is measured annually, and the amount of tax people pay changes in response to fluctuations in their net worth.

Advani argues one-off wealth taxes are more appropriate for extreme crisis periods, such as the pandemic. This is because it’s only in those situations that people are likely to believe the tax is “credibly one-off” – meaning people genuinely trust that tax authorities won’t levy the tax recurrently. As such, Advani argues that now we’re no longer in the pandemic crisis period, the case for a one-off wealth tax is “much weaker” than it used to be. In contrast, there may be a case for an annual wealth tax, but only “if you’re concerned about wealth inequality” – because existing taxes are limited in their ability to reduce it. For other policy objectives, such as raising revenue to fund public spending, he argues reforming existing taxes on assets, such as capital gains tax and inheritance tax, is a better option.

To round things off, Advani and I discussed another passion of his: improving inclusivity in economics. The profession has historically been fraught with the underrepresentation of women, people of colour, and those of low socioeconomic status (low-SES) – and in 2019, he and Sarah Smith, an economics professor at the University of Bristol, set up an organisation called Discover Economics to address this issue.

The initiative aims to broaden interest in the subject amongst students in a plethora of ways, such as providing educational resources, facilitating economics undergraduates giving talks at secondary schools, or an annual ‘Young Economist’ competition where secondary school students compete to analyse contemporary economics-related issues.

“I’m an economist, and I study human behaviour – that’s exactly what we spend a lot of our time doing!”

Dr Arun Advani

I asked Advani about what changes need to be made – either to policy or the broader culture within the discipline – to redress this underrepresentation.

The answer depends on the kind of inequality you’re trying to address. The key problem driving the underrepresentation of those from low-SES backgrounds in the UK is a lack of access to economics for state school students at A-level. This dissuades those students from studying economics at university. As Advani notes: “[Spending] that much of your life and money on this subject you know nothing about – that’s clearly a big ask.” He suggests the solution is to make state school students more well-informed about economics, improving their awareness of what economics is all about, the career opportunities it provides, and making it clear they don’t need an Economics A-level to study it at university.

For gender, the underrepresentation of women is partly due to differing preferences. When it comes to what students value in a university degree, evidence suggests men tend to prioritise employability and earnings potential. Whilst women are concerned about these things too – they disproportionately value aspects like whether they’ll be likely to meet people they get along with in their course cohort, alongside whether they find the course interesting. This, alongside misperceptions of economics amongst people of all genders, has led to a situation where only 1/3 of economics undergraduates in Britain are women. Advani’s eyes light up when he points out many women choose to study psychology at university because it involves the study of human behaviour, even though economics does the exact same thing: “I’m an economist, and I study human behaviour – that’s exactly what we spend a lot of our time doing!”

Just as our conversation wraps up, he emphasises the sheer importance of economics within broader society – something that makes tackling underrepresentation especially crucial:

“If you want to change the world, and you want to change policy in the UK, be an economist. Whether you like it or not, you’re going to have much more of an impact on what you do.”