Permanent Income Inequality: Australia, Britain, Germany, and the United States Compared
AbstractA common critique of most measures of income inequality, which are based on a single year's income, is that they fail to take account of income mobility. If income fluctuations are large, and individuals can smooth consumption, then high inequality and high mobility may be no worse than low inequality and low mobility. To test this, I use panel data from four countries – Australia, Britain, Germany and the United States – and estimate measures of permanent income inequality that are based on income averaged over multiple years. I find that: (1) using pre-government income, annual inequality and permanent inequality have grown in Germany and the US, while post-government income inequality has grown in the US; (2) comparing levels of annual post-government income inequality across countries, the ranking was the US, Australia, Britain, Germany; (3) comparing levels of permanent income inequality across countries, the ranking of triennial post-government inequality in the most recent year was the US, Australia, Germany, Britain; (4) in the most recent year, the most mobile country was Australia, while the least mobile was Germany. However, as a comparison of points (2) and (3) demonstrates, mobility had little effect on the overall rankings.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 628.
Date of creation: Dec 2009
Date of revision:
permanent income; income distribution; Australia; Britain; Germany; United States;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
- J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
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