Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang

73 Pages Posted: 17 Feb 2016

See all articles by Julia Tanndal

Julia Tanndal

Brown University

Daniel Waldenström

Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2016

Abstract

This study estimates the impact of financial deregulation on top income shares. Using the novel econometric method of constructing synthetic control groups, we show that the "Big Bang"-deregulations in the United Kingdom in 1986 and Japan 1997{1999 increased the share of pre-tax incomes going to top earners by over 20 percent in the U.K. and over 10 percent in Japan. The effect is strongest in the top five percentiles in the U.K. whereas it is mainly driven by the lower part of the top decile in Japan. The findings are robust to placebo tests, alternative ways to construct synthetic controls and scrutiny of post-treatment trends. Higher earnings among financial sector employees appear to be an important mechanism behind this result.

Keywords: income inequality, institutions, synthetic control group

JEL Classification: D31, G28, H24, J30, N20

Suggested Citation

Tanndal, Julia and Waldenström, Daniel, Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang (February 2016). CEPR Discussion Paper No. DP11094, Available at SSRN: https://ssrn.com/abstract=2733028

Julia Tanndal (Contact Author)

Brown University

Box 1860
Providence, RI 02912
United States

Daniel Waldenström

Research Institute of Industrial Economics (IFN) ( email )

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

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