Heterogeneity in Ability and Inheritance,Disparities, and Development

This paper investigates the impact of income inequality on economic growth. A two-period overlapping generations model is developed where agents are heterogeneous in innate abilities and inheritance. In the first period, they receive their inheritance and their abilities are revealed. There are only two types of abilities: high and low. Individuals decide on their education level, and divide their inheritance between spending on education and saving. In the second period, individuals supply their labor and allocate the labor income and the return to their saving between consumption and bequests to their offsprings. Initial capital stock is owned entirely by the capitalists. In this context, a more equal distribution of income enhances economic growth if the economy is lower than a threshold capital-labor ratio, while income inequality has an insignificant effect above this threshold. The predictions of the model are tested empirically using the Hansen (1999) threshold estimation. The results, using a panel of 70 countries for the period 1971-1999, suggest that there is a statistically significant threshold income per capita, below which the coefficient on the relationship between inequality and economic growth is significantly negative and above which the estimate is not significant.     

Understanding Rising Income Inequality in Germany, 1999/2000–2005/2006

We examine the factors behind rising income inequality in Europe's most populous economy. From 1999/2000 to 2005/2006, Germany experienced an unprecedented rise in net equivalized income inequality and poverty. At the same time, unemployment rose to record levels, part‐time and marginal part‐time work grew, and there was evidence for a widening distribution of labor incomes. Other factors that possibly contributed to the rise in income inequality were changes in the tax and transfer system, changes in the household structure (in particular the rising share of single parent households), and changes in other socio‐economic characteristics (e.g., age or education). We address the question of which factors were the main drivers of the observed inequality increase. Our results suggest that the largest part of the increase was due to increasing inequality in labor incomes, but that changes in employment outcomes and changes in the tax system also contributed considerable shares. By contrast, changes in household structures and household characteristics, as well as changes in the transfer system only seem to have played a minor role.     

Meeting the Social Policy Challenges Facing Korea

Korea faces the fastest population aging among Organisation for Economic Cooperation and Development countries and increasing levels of income inequality and relative poverty. While economic growth will help address these challenges, growth alone is not sufficient, making it necessary to introduce policies to promote social cohesion. First, the National Pension Scheme and the National Health Insurance need to be improved. Second, Korea should develop well‐targeted social programs and expand the earned income tax credit. Third, it is important to reduce labor market dualism, a major cause of inequality due to the large wage gap between regular and non‐regular workers. Fourth, education reform is needed to lower the financial burden of tertiary education, reduce the heavy reliance on hagwon and increase spending on preprimary education. At the same time, it is essential to maintain a sound fiscal position by increasing tax revenues, primarily through indirect taxes and environmental taxes, to cover rising social spending.     

Social security, public education and the growth-inequality relationship

We study how the relationship between economic growth and inequality depends upon the levels of funding of two of the largest government programs, public education and social security. We do this in the context of an overlapping generations economy with heterogeneous agents where the government collects a tax on labor income to finance these programs. We show that in our model an increase in government spending on social security reduces income inequality and can have a non-monotonic effect on growth. When the initial level of social security funding is low, as is the case in most poor economies, then its increase will enhance growth. When its funding level is high as is typical for developed countries, we show that its further increase can slow down growth while reducing income inequality. These results obtain regardless of whether the increase in social security funding is financed by a tax increase or by cutting the public education budget. We also find that the effects of increasing the level of public education expenditures or the overall size of the government budget (holding the budget composition fixed) are characterized by similar non-monotonic growth-inequality relationships.     

Income Inequality in Rural China: Regression-based Decomposition Using Household Data

A considerable literature exists on the measurement of income inequality in China and its increasing trend. Much less is known about the driving forces of this trend and their quantitative contributions. Conventional decompositions, by factor components or by population subgroups, provide only limited information on the determinants of income inequality. This paper represents an early attempt to apply the regression‐based decomposition framework to the study of inequality accounting in rural China, using household‐level data. It is found that geography has been the dominant factor but is becoming less important in explaining total inequality. Capital input emerges as a most significant determinant of income inequality. Farming structure is more important than labor and other inputs in contributing to income inequality across households.     

Progressive Tax and Inequality in a Unionized Economy*

In this paper, we develop a heterogeneous-agent, endogenous growth model of a unionized economy with distinct progressive tax schedules on labor and capital income. With time preference heterogeneity, the effective labor force, balanced growth, and income inequality are endogenously determined, and these interact with each other. A reduction in the degree of progressive labor tax yields a “double-dividend” in terms of reducing income inequality and boosting economic growth, while capital income progressivity displays the usual growth–inequality trade-off. Particularly, the double-dividend effect becomes more pronounced when unionization is declined or trade unions become more wage-oriented, leading to the so-called “Cheshire cat” phenomenon.     

ACCOUNTING FOR SRI LANKA'S EXPENDITURE INEQUALITY 1980–2002: REGRESSION-BASED DECOMPOSITION APPROACHES

Sri Lanka liberalized its economy in 1977, paving the way for more rapid economic growth and higher rates of job creation. But tensions over distributional issues still plague the body politic. This paper investigates the evolution of Sri Lanka's expenditure distribution in the period 1980–2002 and uses three decomposition methodologies—the Fields, the Shapley value decomposition, and Yun's unified method—to determine underlying causes. The study finds that while average adjusted expenditure rose across strata, the rich experienced more rapid expenditure growth leading to greater inequality. Inequality change was driven by differential access to infrastructure, education, and occupation status. Demographic factors, including ethnicity, and spatial factors contributed very little. The study recommends policies that ensure more equitable access to income earning assets such as education and infrastructure services, and that contain the rise in inequality along sectoral, regional, and ethnic fault lines.     

ACCOUNTING FOR SRI LANKA'S EXPENDITURE INEQUALITY 1980–2002: REGRESSION-BASED DECOMPOSITION APPROACHES

Sri Lanka liberalized its economy in 1977, paving the way for more rapid economic growth and higher rates of job creation. But tensions over distributional issues still plague the body politic. This paper investigates the evolution of Sri Lanka's expenditure distribution in the period 1980–2002 and uses three decomposition methodologies—the Fields, the Shapley value decomposition, and Yun's unified method—to determine underlying causes. The study finds that while average adjusted expenditure rose across strata, the rich experienced more rapid expenditure growth leading to greater inequality. Inequality change was driven by differential access to infrastructure, education, and occupation status. Demographic factors, including ethnicity, and spatial factors contributed very little. The study recommends policies that ensure more equitable access to income earning assets such as education and infrastructure services, and that contain the rise in inequality along sectoral, regional, and ethnic fault lines.     

Income inequality between overlapping and stratification: a longitudinal analysis of personal earnings in France and Italy

The aim of this paper is to gain new insights into the generation process of personal income in France and Italy, two countries that are in close geographical proximity but have a large disparity in terms of income growth and distribution. In the first step, the potential of EU-SILC balanced panel (2004–2007) is exploited by random effects models, which also make it possible to explore the primary factors that are likely to explain differences in generating personal labour earnings. In the second step, the ANOGI (Analysis of Gini) decomposition enables one to assess the contribution of each sub-population to overall income inequality and the degree to which each subgroup is stratified. A joint evaluation of income determinants gives evidence of the high complexity of inequality process and throws light on the role of gender, skill levels and job characteristics in determining different degrees of income stratification. Indeed, although the high heterogeneity among members of a same subgroup (within-group inequality) explains a large share of overall income inequality, the between-group inequality becomes significant in explaining the income differentials between employment status and occupation types.     

THE INEQUALITY OF EMPLOYMENT AND SELF-EMPLOYMENT INCOMES: A DECOMPOSITION ANALYSIS FOR THE U.K.

U.K. employment and self-employment income inequality are analysed over 1979–94/95. Robust inequality decompositions reveal occupation to be a relatively important and hitherto neglected determinant of earnings inequality. In contrast, self-employment income inequality is harder to explain, although occupation is also the most important single factor in the mid-1990s. The paper also provides a novel implementation of a decomposition of changes in Kolm's inequality index.     

教育不平等、收入非平衡与贫困陷阱——对农村教育和农民收入的考察

研究表明,无论是在短期还是长期内,农村居民受教育水平和职业培训的差异是造成收入差距的一个重要因素.同时,教育差距既推动了收入差距的扩大,又可能伴随着收入非平衡增长的扩大而扩大,低收入农户有陷入贫困陷阱的危险,而解决问题的关键是推进农村教育的均衡协调发展.     

Accounting for United States Household Income Inequality Trends: The Changing Importance of Household Structure and Male and Female Labor Earnings Inequality

Using a shift‐share analysis on March CPS data, this paper estimates the degree to which changes in labor earnings, employment, and marriage patterns account for household income inequality growth in the United States since 1979. The factors contributing to the rapid rise in income inequality in the 1980s differ substantially from those contributing to its slower increase since that time. Unlike findings for the 1980s when changes in the correlation of spouses' earnings accounted for income inequality growth, this factor is no longer a major contributor toward its continued increase. Additionally, the 2000s business cycle is the first full business cycle in at least 30 years where changes in earnings of male household heads accounted for declines in income inequality. Instead, the continued growth in income inequality in the 2000s was accounted for primarily by increases in female earnings inequality and declines in both male and female employment.     

The effects of economic growth on income inequality in the US

The paper analyzes the relation between growth and income inequality in the US during the post-war years (1953–2008). We show that the income of the top income groups is more sensitive to growth, defined broadly as current growth and changes in expectations of future growth, compared to the income of the lower income groups. We provide evidence that this increased sensitivity arises for two reasons: (a) the top income groups receive a large portion of their income from wealth, which is more sensitive to growth than labor income and (b) the top income groups receive a large portion of their labor income in the form of pay-for-performance (equity compensation), which is also sensitive to growth. Consequently, we conclude that growth and income inequality are positively associated.     

The political economy of public education

I study the relationship between income inequality and public spending in education in a voting model. Voters collectively choose the uniform quality level of public education, the amount of a public good, and the tax rate on labor income. Parents can decide to opt-out of the public education system by purchasing private education at the desired quality level, and children’s expected income is assumed to be increasing in the quality of education. I show that higher income inequality is associated with higher governmental spending in education if and only if the expected marginal returns to education are larger for the children of relatively low income parents. In turn, better public education tends to reduce future inequality. These results are consistent with most findings in the empirical literature about public investment in education. Lastly, I show that for other kind of publicly provided goods, such as health care, the relationship with income inequality exhibits an ambiguous or opposite sign.     

Income Distribution,Econophysics and Piketty

Piketty, Atkinson and Saez have put the analysis of income distribution back on center stage. The distinction between property income and labor income plays a central role in this framework. Property income derives from the rate of return on stocks of income-earning wealth and is more unequally distributed than labor income. Piketty argues that, because the rate of return (r) is generally greater than the rate of growth of the economy (g), property income tends to grow more rapidly than labor income, so that rising income inequality is an intrinsic tendency of capitalism despite interruptions due to world wars and great depressions. This article argues the exact opposite. The rise of unions and the welfare state were the fruits of long-term historical gains made by labor, and the postwar constraints on real and financial capital arose in sensible reaction to the Great Depression. The ‘neoliberal’ era beginning in the 1980s significantly rolled back all of these. The article uses the econophysics two-class argument of Yakovenko to show that we can explain the empirical degree of inequality using two factors alone: the profit share and the degree of financialization of income. The rise of inequality in the neoliberal era then derives from a reduction in the wage share (rise in the profit share) in the face of assaults on labor and the welfare state, and a sharp increase in the financialization of incomes as financial controls are weakened. These are inherently socio-political outcomes, and what was lost can be regained. Hence, there is no inevitable return to Piketty’s ‘patrimonial capitalism’.     

Inter-provincial migration and inequality during Vietnam's transition

Vietnam's economic boom during the transition to a market economy has centered on very rapid growth in some sectors and provinces, yet poverty has diminished across the entire country. With capital investments highly concentrated by province and sector, geographic labor mobility may be critical in spreading the gains from growth. Conversely, rising income inequality may be attributable in part to impediments to migration. We first use census data to investigate migration patterns and determinants. We then examine the role of migration as an influence on income ratios between pairs of provinces. The former analysis robustly confirms economic motives for migration but also suggests the existence of poverty-related labor immobility at the provincial level. Examination of income ratios between pairs of provinces reveals that the impact of migration on inequality can be either negative or positive. A robust inequality-reducing impact of migration is found for migration flows into provinces where most of Vietnam's trade-oriented industrial investments are located.     

Capitalist systems and income inequality

The paper investigates the relationship between compositional inequality (how the shares of capital and labor income vary along income distribution) and inter-personal income inequality. Using a new methodology and data from 47 countries covering the period 1995–2018, we show that higher compositional inequality is associated with higher inter-personal inequality. This is clearly shown by Latin American countries and India. Nordic countries are exceptional because they combine high compositional inequality with low inter-personal inequality. Their exceptionalism is attenuated when pension income received from largely government-mandated accumulated savings is added to capital income. The analysis shows the theoretical possibility of societies where low compositional inequality may be combined with high income inequality. Currently, China and the United States come closest to that position.     

Redistributive Tax and Growth in a Model with Discrete Occupational Choice

An optimal redistributive tax-subsidy formula is derived for a growth model where income inequality is endogenously driven by an adult's choice of occupation between work and management. Investment in human capital is the engine of growth. The world's stock of exploitable knowledge as well as the economy's average human capital determine the potential rate of return from investment in human capital in an economy. How much available knowledge would be exploited in the economy depends on the proportion of innovators in our model. A redistributive tax reform impacts growth as well as income inequality via its influence over the occupational choice. The optimal redistributive tax rate is path-dependent in the sense that it depends on the initial wealth distribution. The normative implication of the model is that the optimal capital income tax rate could very well be positive if the initial wealth inequality exceeds a threshold. The optimal capital income tax rate depends inversely on the initial wealth inequality.     

Economic Growth and Wage Stagnation in Peru: 1998–2012

From 1998 to 2012, the Peruvian economy exhibited rapid growth. Moreover, the composition of the labor force improved in terms of education and experience, two variables that are typically associated to higher human capital. The average worker in 2012 had a higher level of education and was one and a half years older than in 1998, reflecting the impact of the demographic transition. However, the average real wage was roughly constant. We show that a decline in the wage premium for education, and to a minor extent for experience, is responsible for the lack of growth in the average real wage. Had these two premia remained constant throughout the period of analysis, average labor earnings would have increased by about 2.6% per year, of which 0.7 percentage points are accounted for by the changes in the composition of the labor force in terms of age and education. We explore the role of the relative supply of workers with different levels of human capital as an explanation for the decline in the wage premium for education. Finally, we analyze the implications of these findings for some macroeconomic variables, as earnings and wage inequality, the labor share and total factor productivity.     

收入分配不平等、有效需求与经济增长——一个基于中国经济转型期的实证研究

本文从有效需求角度入手,探究中国经济转型期经济增长与收入分配不平等之间的关系,并运用中国1978-2005年间28个省市的面板数据,通过面板数据单位根检验、协整检验与误差修正模型,对中国经济增长与收入分配不平等、有效需求、劳动力、投资、教育以及收入分配不平等和有效需求交互影响之间的长期关系和短期关系进行了研究。结果显示,中国经济转型期经济增长与收入分配不平等、有效需求具有长期的均衡关系,收入分配不平等通过有效需求机制阻碍了经济增长,且在短期内效果也非常显著。