The Long-Run Determinants of Inequality: What Can We Learn from Top Income Data?

56 Pages Posted: 13 Nov 2008 Last revised: 20 Oct 2009

Jesper Roine

Stockholm School of Economics - Department of Economics

Jonas Vlachos

Stockholm University - Department of Economics

Daniel Waldenström

Research Institute of Industrial Economics

Date Written: 2009

Abstract

This paper studies determinants of income inequality using a newly assembled panel of 16 countries over the entire twentieth century. We focus on three groups of income earners: The rich (P99-100), the upper middle class (P90-99), and the rest of the population (P0-90). The results show that periods of high economic growth disproportionately increases the top percentile income share at the expense of the rest of the top decile. Financial development is also pro-rich and the outbreak of banking crises is associated with reduced income shares of the rich. Trade openness has no clear distributional impact (if anything openness reduces top shares). Government spending, however, is negative for the upper middle class and positive for the nine lowest deciles but does not seem to affect the rich. Finally, tax progressivity reduces top income shares and when accounting for real dynamic effects the impact can be important over time.

Keywords: Top incomes, Income inequality, Financial development, Trade openness, Government spending, Taxation, Economic development

JEL Classification: D31, F10, G11, N30

Suggested Citation

Roine, Jesper and Vlachos, Jonas and Waldenström, Daniel, The Long-Run Determinants of Inequality: What Can We Learn from Top Income Data? (2009). Journal of Public Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1300534

Jesper Roine

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46-8-7369000 (Phone)

Jonas Vlachos

Stockholm University - Department of Economics ( email )

Stockholm, 10691
Sweden

Daniel Waldenstrom (Contact Author)

Research Institute of Industrial Economics ( email )

P.O. Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/danielw

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