Why is Income Inequality Increasing in the Developed World?

We address empirically the factors affecting the dynamics of income inequality among industrialized economies. Using a panel for 32 developed countries spanning the last four decades, our results indicate that the predictions of the Stolper–Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply. We find that democratization, the interaction of technology and education, and changes in the relative power of labor unions affect inequality dynamics robustly.     

Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition

This paper proposes a method to decompose changes in income inequality into the contributions of policy changes, wage rate changes, and population changes while considering labor supply reactions. Using data from the Socio‐Economic Panel (SOEP), this method is applied to decompose the increase in income inequality in Germany from 2002 to 2011, a period that saw tax reductions and a controversial overhaul of the transfer system. The simulations show that tax and transfer reforms have had an inequality‐reducing effect as measured by the mean log deviation and the Gini coefficient. For the Gini, these effects are offset by labor supply reactions. In contrast, policy changes explain part of the increase in the ratio between the 90th and the 50th income percentiles. Changes in wage rates have led to a decrease in income inequality. Thus, the increase in inequality was due to changes in the population.     

Why Are Women Delaying Motherhood in Germany?

Abstract

German fertility trends show that the average age at which women have their first child has increased in recent decades. Moreover, researchers have argued that delayed maternity is an important factor in reduced fertility. Using data from the German Socio-Economic Panel (SOEP), this paper contributes to the debate about maternity timing and reduced fertility in Germany by analyzing some of the factors determining the delay of motherhood. The results suggest that German women who have accumulated more years of education and longer work experience at the time of marriage delay motherhood more. On the other hand, women with higher labor income and a higher contribution to household income delay motherhood less. The results confirm that women consolidate their careers before motherhood in order to reduce career costs. Therefore, if fertility rates are to be increased in Germany further policies that aim to combine women's careers and motherhood need to be developed.     

Who Supports Redistribution? Subjective Income Inequality in Japan and China

Governments reduce income inequality with redistribution policies. These policies are often contentious because people who live in the same country have different preferences for redistribution. Some prefer the government to do more while others prefer the government to do less. Hence what explains the difference in preferences? Using the methodologically suitable cases of Japan and China, this paper contributes to the redistributive preference literature by proposing an alternative theory of how a person's subjective evaluation of and experiences with income inequality—subjective income inequality—affect his/her redistributive preferences. Specifically, a person who feels that his/her country's level of income inequality is too high is more likely to support government redistribution. But contrary to extant studies, this paper finds that a spatial locality's level of objective income inequality does not systematically affect its citizens' preference for redistribution. This finding has implications for redistribution policies because government policies in Japan and China—as with other countries—narrowly frame income inequality in the objective dimensions by pegging it to objective income inequality indices(e.g., Gini ratio), thereby ignoring the more important subjective dimensions of income inequality.     

How Does Fiscal Consolidation Impact on Income Inequality?

In this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1978 to 2009, we find that income inequality significantly rises during periods of fiscal consolidation. In addition, while fiscal policy that is driven by spending cuts seems to be detrimental for income distribution, tax hikes seem to have an equalizing effect. We also show that the size of the fiscal consolidation program (in percentage of GDP) has an impact on income inequality. In particular, when consolidation plans represent a small share of GDP, the income gap widens, suggesting that the burden associated with the effort affects disproportionately households at the bottom of the income distribution. Considering the linkages between banking crises and fiscal consolidation, we find that the effect on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoil. Similarly, fiscal consolidation programs combined with inflation are likely to increase inequality and the effects of fiscal adjustments on inequality are amplified during periods of relatively low growth. Our results also provide support for a non‐linear relationship between inequality and income and corroborate the idea that trade can promote a more equal distribution of income.     

Did Partial Globalization Increase Inequality? The Case of the Latin American Periphery, 1950-2000

Inequality is an important threat to the globalization of theworld economy that we experience today. This contribution usesthe coefficient of height variation as a measure of inequality.This indicator covers not only wage recipients, but also theselfemployed, the unemployed, housewives, children, and othergroups who may not participate in a market economy, for theperiod 1950–79, for which income inequality data is mostlyunavailable or inconsistent. It turns out that within-countryinequality is higher in time periods of greater openness. Thisresult is confirmed for the time period 1950–2000, anda much broader model. (JEL I12, I32, N33)     

Income Inequality and Workers’ Powerlessness in Selected OECD Countries

Our goal is to show the effects of “elitization” on income inequality in affluent countries over the last two decades. By applying a robust regression model on a sample of twenty-one OECD countries, we observe that a high concentration of wealth by the richest “1%” of the population results in reducing the impact of trade unions on income redistribution through political institutions. Insufficient redistribution can be interpreted not only as the elites’ control over the resources that influence public policy and opinion, but also as affecting the evolutionary path of the economy. Moreover, this influence emphasizes the importance of traditional institutions and serves as an inspiration to reconsider the established social consensus regarding the welfare state.     

How Do Factor Specificity and Emigration Make Income Inequality Worse in Developing Countries?

Journal of Quantitative Economics - Immigration policies in most developed countries are increasingly tilted toward skilled labor. Whether such policies hurt the sending countries is somewhat...     

Wealth Inequality in Sweden: What can we Learn from Capitalized Income Tax Data?

This paper presents new estimates of wealth inequality in Sweden during 2000–2012, linking wealth register data up to 2007 and individually capitalized wealth based on income and property tax registers for the period thereafter when a repeal of the wealth tax stopped the collection of individual wealth statistics. We find that wealth inequality increased after 2007 and that more unequal bank holdings and housing appear to be important drivers. We also evaluate the performance of the capitalization method by contrasting its estimates and their dispersion with observed stocks in register data up to 2007. The goodness‐of‐fit varies tremendously across assets and we conclude that although capitalized wealth estimates may well approximate overall inequality levels and trends, they are highly sensitive to assumptions and the quality of the underlying data sources.     

Regional Income Inequality in the United States: 1969–2017

Abstract:

This article contains an analysis of the nation’s 100 lowest and 100 highest per capita income counties in the United States from 1969 to 2017. The low-income counties are very different from the high-income counties. Compared to the high-income counties, the low-income counties are generally small, mainly rural, and geographically concentrated. The people of the low-income counties are also more likely to be from minority groups than the people of either the nation or the high-income counties. Despite major institutional and technological change, both groups of counties exhibit considerable stability over the last half century. A reasonable assertion from the analysis is that the nature of regional income inequality is not likely to change substantially over the next half-century.     

Do Piketty and Saez Misstate Income Inequality? Critiquing the Critiques

A large body of literature points to sharply growing income inequality over the past half century. The Piketty and Saez dataset that measures income distribution provides empirical support for this claim. Our article evaluates three prominent criticisms of this dataset as well as the responses of Piketty and Saez to these criticisms. One key argument against using their dataset is that Piketty and Saez do not control for income shifting by top income earners in response to the Tax Reform Act of 1986 (TRA86) and thus overstate income inequality. In evaluating this criticism we find that a segment of their dataset likely understates income inequality; this is just the opposite of what critics assert. This implies that the Piketty–Saez dataset is a valuable resource for income inequality research and that scholars can use it to build more refined, accurate and insightful measures of income inequality.     

How Much Did Oil Market Developments Contribute to the 2009 Recession in Germany?

In this paper, we use a structural vector autoregressive model to study the effects of oil market developments on the German economy. We find that higher oil prices are always associated with a decline in private consumption expenditures, but the response of gross domestic product (GDP) crucially depends on the underlying shock. While a disruption in oil supply provokes a recession, positive world demand shocks prompt a temporary increase in exports and investment, which initially outweigh the cutback on consumption. In a counterfactual analysis, we show that the world demand shocks that led to the 2007/2008 oil price rise triggered a delayed 0.8 percent decrease in German GDP in 2009, and therefore notably contributed to the recession of that year.     

The Evolution of Income Composition Inequality in Italy, 1989–2016

We study the evolution of inequality in income composition in terms of capital and labor income in Italy between 1989 and 2016. We document a rise in the share of capital income accruing to the bottom of the distribution, while the top of the distribution increases its share of labor income. This implies a falling degree of income composition inequality in the period considered and a weaker relationship between the functional and personal distribution of income in Italy. This result is robust to various specifications of self-employment income; nonetheless, it hinges crucially on the treatment of rental incomes. While the dynamics of imputed rents has brought about a more equitable distribution of capital incomes across the income distribution, that of actual rents has led to higher concentration of capital incomes at the top in the decade preceding the outbreak of the financial crisis. Finally, we conceptualize a rule of thumb for policy makers seeking to reduce income inequality in the long run.     

Policy,Demography, and Market Income Volatility: What Shaped Income Distribution and Inequality in Australia Between 2002 and 2016?

Isolating the impact of policy, demographic shifts, and market volatility on changes in income inequality is of great interest to policymakers. However, such estimation can be difficult due to the complex interactions and evolutions in the social and economic environment. Through an extended decomposition framework, this paper estimates the effect of four main components (policy, demography, market income and other factors) on the year-over-year changes in income inequality in Australia between 2002 and 2016. This was a period marked by substantial policy, population, and economic shifts due to factors such as the mining boom, the global financial crisis and increasing immigration. The framework also incorporates a flexible non-parametric market income model which captures demand-side shock better than a standard parametric model. Our results suggest that market income was the primary driver of income inequality for all segments of the income distribution in Australia over the past 15 years. Policy factors, moreover, have had the largest net impact on reducing inequality overall, especially for lower income earners.     

Market Transition and Income Inequality in Urban China： Evidence from Shapley Value Decomposition

China＇s market-oriented reform is expected to strengthen the role of the market in allocating resources, which raises concerns over the impact of market transformation on income distribution and earnings inequality in the past decades. This paper decomposes the sources of inequality based on the newly developed Shapley value approach and examines the contributions of the market, along with other nonmarket factors, to total inequality. Using the China Health and Nutrition Survey data over the period 1989-2009, we find that the income gap between laborers with a higher level of education and those with a lower level has widened since the transformational reforms of the economy. Our results suggest that the largest contribution of changes in income inequality can be attributed to the increase in returns to education, while the relative contributions of the household registration （hukou） system, type of sector ownership, geographic location, and gender to inequality experienced a downward trend between 1989 and 2009. The authors argue that rising income inequality is the consequence of efficiency improvements and an imperfect economic system, and that the market is a decisive force in economic development as it releases competitive signals and creates incentive mechanisms for innovation. Creating a more efficient labor market and increasing investment in human capital, particularly equalizing educational opportunities and improving the quality of education in lagging rural and inland regions to disadvantaged groups, are significant for an equitable distribution of income and sustainable development in the long run.     

Why does consumption fall at retirement? Evidence from Germany

Analyzing the consumption behavior over retirement in Germany, this paper finds a negative correlation between income replacement and the increase in home-production-related activities. This might reconcile the observed drop in consumption at retirement with the predictions of the standard life cycle model. However, since individuals with fairly stable income over retirement also increase home production, this increase cannot be entirely attributed to a substitution effect.     

ITQs,Firm Dynamics and Wealth Distribution: Does Full Tradability Increase Inequality?

Concerns over the re-distributive effects of individual transferable quotas (ITQ’s) have led to restrictions on their tradability. We consider a general equilibrium model with firm dynamics to evaluate the redistributive impact of changing the tradability of ITQs. A change in tradability would happen, for example, if permits are allowed to be traded as a separate asset from ownership of an active firm. If the property right is associated with ownership of an active firm, the permit can be leased in each period but it is not possible to exit the industry and keep the right. However, allowing the permits to be traded as a separate asset has two effects. First, it leads to a greater concentration of production in the industry. Second, it directly converts a non-tradable asset into a tradable one, and this is equivalent to giving a lump sum transfer to all firms. The first effect implies a concentration in revenues, while the second implies a redistribution of wealth. We calibrate our model to match the observed increase in revenue inequality in the Northeast Multispecies (Groundfish) U.S. Fishery. We show that although observed revenue inequality—measured by the Gini coefficient—increases by 12 %, wealth inequality is reduced by 40 %.     

Why culture in economics?

This article responds to the points raised by Deirdre McCloskey, Emily Chamlee-Wright, Rob Garnett and Solomon Stein in the symposium on my book Understanding the Culture of Markets (Routledge 2013).