Innovation and Top Income Inequality
64 Pages Posted: 13 Jun 2015 Last revised: 29 Jul 2015
Date Written: July 24, 2015
In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities.
Keywords: Top Income, Inequality, Innovation, Patenting, Citations, Social Mobility, Incumbents, Entrant
JEL Classification: O30, O31, O33, O34, O40, O43, O47, D63, J14, J15
Suggested Citation: Suggested Citation