Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

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

Jesper Roine (jesper.roine@hhs.se) and Daniel Waldenström (daniel.waldenstrom@ifn.se)
Additional contact information
Jesper Roine: Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden
Daniel Waldenström: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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

JEL-codes: C32; D30; N30

31 pages, June 16, 2009

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