Working Paper Series
On the Role of Capital Gains in Swedish Income Inequality
() and Daniel Waldenström
Abstract: Realized capital gains are typically disregarded in the
study of income inequality. We show that in the case of Sweden this
severely underestimates the actual increase in inequality and, in
particular, top income shares during recent decades. Using micro panel data
to average incomes over longer periods and re-rank individuals according to
income excluding capital gains, we show that capital gains indeed are a
reoccurring addition to rather than a transitory component in top incomes.
Doing the same for lower income groups, however, makes virtually no
difference. We also try to find the roots of the recent surge in capital
gains-driven inequality in Sweden since the 1980s. While there are no
evident changes in terms of who earns these gains (high wage earners vs.
top capital income earners), the primary driver instead seems to be the
drastic asset price increases on the post-1980 deregulated financial
Keywords: Top incomes; Income inequality; Capital gains; Capital income; Sweden; Welfare state; (follow links to similar papers)
JEL-Codes: D31; (follow links to similar papers)
32 pages, April 29, 2011
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