What Determines the Capital Share Over the Long Run of History?

44 Pages Posted: 4 May 2020

See all articles by Erik Bengtsson

Erik Bengtsson

Lund University

Enrico Rubolino

University of Essex - Institute for Social and Economic Research (ISER)

Daniel Waldenström

Research Institute of Industrial Economics (IFN)

Abstract

This paper analyzes the determinants of the labor-capital split in national income for 20 countries since the late 1800s. Our main identification strategy focuses on unique historical quasi-experimental events: i) the introduction of universal suffrage, ii) close election wins of left-wing governments, iii) decolonization, iv) unionization shocks, and v) wars. We also run instrumented panel regressions. Our findings show that the capital share decreased in response to radical institutional and political shifts, such as the introduction of universal suffrage in the early 1900s, the undoing of colonialism and the implementation of redistributive policies during the post-war period. By contrast, the capital share increased following the erosion of trade unionism since the 1980s. Wars, despite destroying the capital stock, generated windfall profits that increased the capital share.

Keywords: inequality, factor shares, event study, economic history, institutions

JEL Classification: D33, E02, N00

Suggested Citation

Bengtsson, Erik and Rubolino, Enrico and Waldenström, Daniel, What Determines the Capital Share Over the Long Run of History?. IZA Discussion Paper No. 13199, Available at SSRN: https://ssrn.com/abstract=3590898

Enrico Rubolino

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Daniel Waldenström

Research Institute of Industrial Economics (IFN) ( email )

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

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