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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2007:17:
What Determines Top Income Shares? Evidence from the Twentieth Century

Jesper Roine (), Jonas Vlachos () and Daniel Waldenström ()

Abstract: This paper examines the long-run determinants of the evolution of top income shares. Using a newly assembled panel of 16 developed countries over the entire twentieth century, we find that financial development disproportionately boosts top incomes. This effect appears to be particularly strong during the early stages of a country’s development. Economic growth is strongly pro-rich which is inconsistent with globalized labor markets determining the incomes of elites. Furthermore, international trade is not associated with increases in top incomes on average, but is so in Anglo-Saxon countries. Finally, tax progressivity has a significant negative effect on top income shares whereas government spending has no such clear impact on inequality.

Keywords: Top incomes; income inequality; financial development; trade openness; government spending; economic development; (follow links to similar papers)

JEL-Codes: D31; F10; G10; N30; (follow links to similar papers)

39 pages, September 29, 2007

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