The Distributional Effects of Inflation in Australia 1980–1995

This paper examines the distributional effects of price changes in Australia over the period 1980 to 1995, using equivalent variations and equivalent incomes. The Linear Expenditure System is applied to each of a range of income groups rather than using a single set of parameters. The price changes are found to impose a relatively higher burden on lower income groups in some years, although in other years the higher income groups were affected relatively more. The distribution of equivalent incomes has the highest inequality in years of high overall inflation. However, the effects on inequality are low: the highest increase in inequality as a result of differential price changes is less than one per cent.     

The Suffering Middle: Trends in Income Inequality in Australia, 1982 to 1993–94

This article analyses labour force trends, household composition and income inequality between 1982 and 1993–94, principally using unit record tapes for the two years produced by the Australian Bureau of Statistics. The results suggest that earnings and private income inequality increased during these 11 years. However, increasing progressivity in the income tax and, in particular, the government cash transfer system fully offset this growing market-based inequality. Summary inequality measures thus suggest that the distribution of disposable (post-tax/transfer) and equivalent disposable income was much the same in 1993–94 as in 1982. However, this apparent stability disguised real income gains at the top and bottom of the income spectrum and losses for the middle 50 per cent of Australians.     

The Changing Pattern of Sources of Income and its Impact on Inequality: The Method and its Application to Australia, 1975–94

This paper proposes a new method of explaining the temporal change in economic inequality in terms of changes in the sources of income. The method is based on the decomposition of the Gini coefficient by source of income. Using this method, the paper also examines changes of the sources of private income in Australia over the last two decades and their impact on the distribution of income. It will be seen that not only have the shares of income from different sources changed, but that there has been significant change in inequality of distribution of the components themselves.     

Redistribution in the age of austerity: evidence from Europe 2006–2013

We examine the relationship between changes in a country’s public sector fiscal position on inequality at the top and bottom of the income distribution during the age of austerity from 2006 to 2013. We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on Statistics of Income and Living Conditions (EU-SILC) and IMF data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggests a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies and likely produces increased incentives for rent-seeking while reducing incentives for workers to increase productivity.     

Inequality and the business cycle: A consumption viewpoint

Using Consumer Expenditure Survey data, we obtain summary measures of the distributions of income and consumption for each quarter between 1980 and 1994. We find that the trends in the distribution of income and consumption and the response of these trends to changes in inflation and unemployment were similar during this period. We find that unemployment does not significantly affect the inequality measures and that inflation has a progressive effect, i.e., that a decrease in inflation is associated with an increase in inequality. Finally, we find that the relationship between inequality and macroeconomic variables during the 1990s may be similar to the relationship that existed prior to 1980. First version received: September 1996/final version received: September 1997     

CHANGES IN INCOME INEQUALITY: AUSTRALIA, 1968–69 TO 1973–74

The period 1968–69 to 1973–74 saw a redistribution of incomes in Australia. This is evidenced first by declining differentials between dissimilar persons and secondly by changes in two measures of income inequality, the Gini and Theil coefficients.
The inequality coefficients are decomposed into components which distinguish between that part of total inequality due to income differences between dissimilar persons and that part due to inequality between similar persons. It is found that the reduction in inequality was due to the reduction in differentials between dissimilar persons and that inequality between similar persons probably did not change over the period.     

Income Growth and Earnings Variations in New Zealand, 1998–2004

This article analyses changes in the distributions of working‐age individuals' earnings and total income in New Zealand over the period 1998–2004. We find that there have been broad gains in income across the distribution, suggesting the spoils of growth have been shared widely. Mean and median earnings increased 15 and 23 per cent respectively, while mean and median income increased 12–13 per cent. Inequality, as measured by the Gini coefficient, was more stable: earnings inequality fell 4 per cent, while income inequality was unchanged. The main drivers of the changes were employment and real wage growth. We estimate that roughly one‐half of the growth in average incomes was due to employment growth, and one‐quarter each to demographic changes and wage growth. The relative employment and wage contributions varied across the income distribution: employment growth dominated gains at the lower end of the distribution, while wage gains dominated changes at the higher end.     

Fast Development With a Stable Income Distribution: Taiwan, 1979–94

This paper studies the mechanisms underlying the apparent stability of the income distribution in Taiwan. An original decomposition method based on micro-simulation techniques is proposed. Applied to the distribution of income in Taiwan since 1979, it permits isolating the respective impact of changes in: (a) the earning structure; (b) labor-force participation behavior; and (c) the socio-demographic structure of the population. The stability of the distribution in Taiwan appears as the result of various structural forces which happened to offset each other. The small drop observed in the inequality of individual earnings resulted from the combination of unequalizing changes in the wage structure and the effects of changes in female labor-force participation as well as in the educational structure of the population. However, the same offsetting forces, together with changes in the composition of households, resulted in a small increase in the inequality of the distribution of equivalized household income.     

Twenty Years of Rising Inequality in U.S. Lifetime Labour Income Values

In this paper we study the evolution of lifetime labour income inequality by constructing present value life cycle measures that incorporate both earnings and employment risk. We find that, even though lifetime income inequality is 40% less than earnings inequality, the total increase in lifetime income inequality over the past 20 years is the same as earnings inequality. While the total increase is the same, the pathways there differ with earnings inequality experiencing a steady increase and lifetime income inequality increasing in spurts particularly in the latter half of the 1990s. Finally, we find the changes in lifetime income inequality are primarily driven by changes in earnings mobility and changes in the earnings distribution itself, changes in employment risk and the composition of the sample, such as the shift toward attaining more education and the ageing population, do not play a large role.     

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.     

WEALTH AND THE DISTRIBUTION OF INCOME, CANADA 1969–70

This paper explores the sensitivity of the size distribution of family income in Canada to alternative definitions of income. These alternative definitions examine both wealth generally in the form of an annuity equivalent, and home ownership in the form of imputed rent. An adjustment for family size differences is also made. The impact of these adjustments is assessed for average incomes, inequality, and the incidence of low income for different age groups. The adjustments do have significant effects that vary by age; in particular, the economic position of the elderly seems understated by the usual data. Also, methodological considerations, such as the direct use of micro data and the choice of inequality indicator are shown to be significant.     

Factor Components of Inequality: A Cross‐Country Study

This paper uses data from the Luxembourg Income Study to examine some of the forces that have driven changes in household income inequality over the last three decades of the twentieth century. We decompose inequality for six countries (Canada, Germany, Norway, Sweden, the U.K., and the U.S.) into the three sources of market income (earnings, property income, and income from self‐employment) and taxes and transfers. Our findings indicate that although changes in the distribution of earnings are an important force behind recent trends, they are not the only one. Greater earnings dispersion has in some cases been accompanied by a reduction in the share of earnings which dampened its impact on overall household income inequality. In some countries the contribution of self‐employment income to inequality has been on the rise, while in others, increases in inequality in capital income account for a substantial fraction of the observed distributional changes.     

Finance and income inequality in Kazakhstan: evidence since transition with policy suggestions

Kazakhstan gained independence in 1990 and has undergone significant changes in economic, social and trade conditions since then. We analyse the effects of financial development on income inequality in Kazakhstan, incorporating economic growth, foreign investment, education and the role of democracy as the drivers. We establish that income inequality in Kazakhstan is impaired by financial development. In summary, we send three messages for policy purposes. First, strengthening financial sector is necessary to close the gap between ‘haves and have-nots’. Second, attracting FDI beyond the hydrocarbon sector is necessary to alleviate inequality. Finally, adaptation of education system to the new social and economic environment would help in improving income distribution.     

POVERTY AND INCOME INEQUALITY IN PUERTO RICO, 1969–89: TRENDS AND SOURCES

The paper examines Puerto Rican trends in income distribution during the 1970s and 1980s, then attempts to ascertain the source of the changes in income inequality through a decomposition of the Gini coefficient by factor income source. The study finds that poverty and inequality declined unambiguously during the twenty-year period. The source of the fall in income concentration was found to have been tied, not to changes in the distribution or share of earned income, but to that of unearned income, particularly transfers. These appear to have also accounted for the decline in poverty.     

Employment Patterns of Husbands and Wives and Family Income Distribution in Italy (1977–98)

The pattern of employment among men and women has changed remarkably over the past decades. The growth in the participation in the labor market of women with high-income husbands has heightened concerns that wives' earnings may increase income inequality among married couples, especially in countries like Italy, the U.K., and the U.S., where more noticeable growth of income inequality during the past decade has accompanied changes in employment levels. In this paper we attempt to measure the impact of the changes of women and men's employment patterns on the distribution of income among Italian households, by considering regional differences, using micro data from the Historical Archive of the Bank of Italy Survey of Household Income and Wealth (SHIW) for the period 1977–98. Our results indicate that total income distribution would have been more unequal without women's labor income.     

GROWTH, POVERTY, AND INEQUALITY IN LATIN AMERICA: A CAUSAL ANALYSIS, 1970–94

Taking advantage of consistent poverty and income inequality data for 12 Latin American countries between 1970 and 1994, we analyze the determinants of changes in the incidence of urban and rural poverty and in Gini coefficients over spells of years, stressing in particular the role of aggregate income growth. We find that income growth reduces urban and rural poverty but not inequality. We also find that income growth is more effective in reducing urban poverty if the levels of inequality and poverty are lower, and the levels of secondary education higher. We show that there is an asymmetry in the impact of growth on poverty and inequality, with recession having strong negative effects on both poverty and inequality. Since growth does not reduce inequality, economic cycles create ratchet effects on the level of inequality. However, post-structural adjustment growth is quite effective at reducing poverty, particularly if inequality is low.     

Sources of Inequality: Measuring the Contributions of Income Sources to Rising Family Income Inequality

We develop a simulation method for measuring the impact of changes in the distributions of the main income sources on growth in family income inequality. We simulate the entire distribution of family income under the counterfactual, “What if the distribution of each source had not changed?” The simulation method allows us to evaluate the impact of changes at any point in the distribution as well as with multiple measures of inequality. We incorporate married‐couple and single‐person families, appropriately accounting for changes in the proportion married. We apply the simulation method to investigate the impact of changes in male earnings, female earnings, and capital income on the distribution of family income in the United States between 1969 and 1999. We find that changes in the distribution of male earnings account for more of the growth in family income inequality than do changes in any other source of income. Changes in the distribution of female earnings have reduced family income inequality.     

Does income inequality increase charitable giving?

Do households react to changes in the distribution of income in their localities by changing their charitable giving? The theoretical prediction of the effects of income inequality on giving is unclear. We study how changes in income inequality measured at the neighbourhood and municipality levels affect charitable giving by households in Canada between 1991 and 2006. We find that increases in inequality increase giving. Results are sensitive to the geographic dispersion of low‐ and high‐income households in neighbourhoods within a municipality. The effect on donations is smaller in areas with high levels of inequality at both neighbourhood and municipality levels.     

Estimating the marginal propensity to consume using the distributions of income,consumption, and wealth

Studies of economic inequality almost always separately examine income, consumption, and wealth inequality, and hence, miss the important synergy amongst the three measures explicit in the life-cycle budget constraint. These joint distributions, however, are important in evaluating macroeconomic impacts of changes in income because the response may differ across the wealth distribution. This heterogeneity in the response to income changes can have significant impact on the effectiveness of government fiscal policy. Using the Panel Study of Income Dynamics from 1999–2013, we examine how the marginal propensity to consume (MPC) differs across the wealth distribution. We find that the MPC is lower at higher wealth quintiles, indicating that low wealth households cannot smooth consumption as much as other households. This implies that increasing wealth inequality likely reduces aggregate consumption, which, in turn, could limit economic growth.     

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals

This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27‐year period we find that consumption inequality increases almost as much as does income inequality.