Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 676: What Determines Top Income Shares? Evidence from the Twentieth Century

Jesper Roine (), Jonas Vlachos () and Daniel Waldenström ()
Additional contact information
Jesper Roine: SITE, Postal: SITE, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Jonas Vlachos: Department of Economics, Stockholm University
Daniel Waldenström: IFN, Postal: IFN, , P.O. Box 55665, , SE-10215 Stockholm, Sweden

Abstract: This paper examines the long-run determinants of the evolution of top in-come shares. Using a newly assembled panel of 16 developed countries over the entire twentieth century, we find that financial development dis-proportionately 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 An-glo-Saxon countries. Finally, tax progressivity has a significant negative ef-fect 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

JEL-codes: D31; F10; G10; N30

39 pages, September 29, 2007

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