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Research Institute of Industrial Economics (IFN) Working Paper Series

No 801:
Common Trends and Shocks to Top Incomes – A Structural Breaks Approach

Jesper Roine () and Daniel Waldenström ()

Abstract: In this paper we use newly compiled top income share data to estimate common breaks and trends across countries over the twentieth century. By using the most re-cent structural breaks techniques, our approach both confirms previous notions and offers new insights. In particular, the division into an Anglo-Saxon and a Continental European experience does not seem to be as clear cut as previously suggested. Some continental European countries have had increases in top income shares, just as in the Anglo-Saxon countries, but typically with a lag. Most notably, we find that the Nordic countries display a marked “Anglo-Saxon” pattern, with sharply increased top income shares. Unlike in the Anglo-Saxon countries, however, including realized capital gains seems important in these countries. Our results help inform theories about the causes of the recent rise in inequality.

Keywords: Top Incomes; Income Inequality; Economic Development; Common Structural Breaks; (follow links to similar papers)

JEL-Codes: C32; D30; N30; (follow links to similar papers)

31 pages, June 16, 2009

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