The Evolution of Top Incomes in an Egalitarian Society; Sweden, 1903-2004

Abstract:     
This study presents new homogenous series of top income shares in Sweden over the period 1903-2004. We find that, starting from levels of inequality approximately equal to those in other Western countries at the time, the income share of the Swedish top decile drops sharply over the first eighty years of the twentieth century. Most of the decrease takes place before the expansion of the welfare state and by 1950 Swedish top income shares were already lower than in other countries. The fall is almost entirely due to a dramatic drop in the top percentile explained mostly by decreases in capital income, while the lower half of the top decile - consisting mainly of wage earners - experiences virtually no change over this period. In the past decades top income shares evolve very differently depending on whether capital gains are included or not. When included, Sweden's experience resembles that in the U.S. and the U.K. with sharp increases in top incomes. Excluding capital gains, Sweden looks more like the continental European countries where top income shares have remained relatively constant. A possible interpretation of our results is that Sweden over the past 20 years has been a country where it is more important to make the right financial investments than to earn a lot to become rich.

Number of Pages in PDF File: 38

Keywords: Income inequality, Income distribution, Wealth distribution, Top incomes, Welfare state, Sweden, Taxation, Capital gains

JEL Classification: D31, H2, J3, N3

Accepted Paper Series