Working Paper Series
The Long-run Determinants of Inequality: What Can We Learn from Top Income Data?
(), Jonas Vlachos
() and Daniel Waldenström
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; (follow links to similar papers)
JEL-Codes: D31; F10; G10; H20; N30; (follow links to similar papers)
47 pages, October 16, 2007, Revised April 1, 2009
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