The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the Usa

26 Pages Posted: 19 Aug 2008

See all articles by Anna Fräßdorf

Anna Fräßdorf

Humboldt University of Berlin

Markus Grabka

German Institute for Economic Research (DIW Berlin)

Johannes Schwarze

University of Bamberg; German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

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Abstract

This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for Great Britain, the SOEP for West Germany, and the PSID for the USA, a factor decomposition method described by Shorrocks (1982) is applied. The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and its share in disposable income has risen in recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.

Keywords: inequality, capital income, factor decomposition, CNEF

JEL Classification: D33, I31, F00

Suggested Citation

Fräßdorf, Anna and Grabka, Markus and Schwarze, Johannes, The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the Usa. IZA Discussion Paper No. 3492, Available at SSRN: https://ssrn.com/abstract=1237045 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Anna Fräßdorf (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Markus Grabka

German Institute for Economic Research (DIW Berlin) ( email )

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SOEP
D-10117 Berlin
Germany
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Johannes Schwarze

University of Bamberg ( email )

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Bamberg 96045
Germany
+49 951 863 2600 (Phone)
+49 951 863 5569 (Fax)

German Institute for Economic Research (DIW Berlin)

Mohrenstraße 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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