Structural reforms and income distribution: an empirical analysis

In a majority of advanced countries, gross domestic product (GDP) growth since the mid-1980s has been associated with growing income disparities. To shed some light on the potential sources of trade-offs between growth and equity, this chapter investigates the long-run impact of structural reforms on household incomes across the distribution, and hence on income inequality. The chapter considers the sources of macroeconomic growth by decomposing growth in GDP per capita into growth in labour utilization and labour productivity. This allows shedding light on the mechanisms through which growth and its drivers, including policy drivers, benefit household incomes at different points of the income distribution. Most structural reforms are found to have little impact on income inequality when this is assessed through measures that emphasize the middle class. By contrast, a higher number of structural reforms, in particular social protection and labour market reforms, are found to have an impact on income inequality and thus may raise trade-offs and synergies between growth equity objectives when inequality is assessed through measures that put relatively more emphasis on incomes among the poor. This corresponds to higher inequality aversion.