A government introduces an annual 2% wealth tax on the net asset holdings of households valued above £5 million. At the same time, it reduces the top marginal rate of personal income tax from 45% to 35%.
Assuming no other changes, what is the most likely long-run effect of these policies on income and wealth inequality?
Both income and wealth inequality increase.
Income inequality increases, and wealth inequality decreases.
Income inequality decreases, and wealth inequality increases.
Both income and wealth inequality decrease.
