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Top Incomes, Rising Inequality, and Welfare

Author

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  • Kevin J. Lansing
  • Agnieszka Markiewicz

Abstract

We introduce permanently-shifting income shares into a standard growth model with two types of agents. Capital owners represent the top quintile of U.S. households while workers represent the remainder. Our tractable model allows us to exactly replicate the observed U.S. time paths of the top quintile income share, capital’s share of income, and key macroeconomic variables over the period 1970 to 2013. For the baseline simulation, the welfare gain for capital owners is 3.7% of per-period consumption while workers suffer a welfare loss of 1.4%. Using counterfactual simulations, we find that both groups could have achieved gains if redistributive government transfers had increased to around 18% of total output by the year 2013 - somewhat higher than the actual value of around 15% observed in the data.

Suggested Citation

  • Kevin J. Lansing & Agnieszka Markiewicz, 2015. "Top Incomes, Rising Inequality, and Welfare," CESifo Working Paper Series 5517, CESifo.
    • Handle: RePEc:ces:ceswps:_5517
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    Cited by:

    1. Slama, S. & Toubon, H., 2017. "Les organismes d’assurance en France : évolution des placements en 2016," Bulletin de la Banque de France, Banque de France, issue 214, pages 23-34.
    2. Ariane Hautcoeur & Jean-Luc Cayssials, 2017. "French direct investment stocks - French holdings of foreign equity increased in 2015 and 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 45-60, Winter.
    3. Balard, M. & Boileau, A., 2017. "Des résultats semestriels 2017 très solides pour les principaux groupes industriels et commerciaux français," Bulletin de la Banque de France, Banque de France, issue 214, pages 57-71.
    4. Haas, F., 2017. "Les inégalités croissantes du modèle américain," Bulletin de la Banque de France, Banque de France, issue 214, pages 45-55.
    5. Patrizio Tirelli & Maria Ferrara, 2020. "Disinflation, Inequality, And Welfare In A Tank Model," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1297-1313, July.
    6. Advani, Arun & Koenig, Felix & Pessina, Lorenzo & Summers, Andy, 2020. "Importing Inequality: Immigration and the Top 1 Percent," IZA Discussion Papers 13731, Institute of Labor Economics (IZA).
    7. François Haas, 2017. "Growing inequalities in the American model," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 61-72, Winter.
    8. Maria Ferrara & Patrizio Tirelli, 2014. "Fiscal Consolidations: Can We Reap the Gain and Escape the Pain?," Working Papers 283, University of Milano-Bicocca, Department of Economics, revised Oct 2014.
    9. Agnieszka Markiewicz & Rafal Raciborski, 2022. "Income Inequality and Stock Market Returns," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 43, pages 286-307, January.
    10. Samuel Slama & Hector Toubon, 2017. "Insurance undertakings in France: investment developments in 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 23-34, Winter.
    11. Paolo Gelain & Kevin J. Lansing & Gisle J. Natvik, 2018. "Explaining the Boom–Bust Cycle in the U.S. Housing Market: A Reverse‐Engineering Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(8), pages 1751-1783, December.
    12. Charalampidis, Nikolaos, 2022. "Top income shares, inequality, and business cycles: United States, 1957–2016," European Economic Review, Elsevier, vol. 150(C).
    13. Lansing, Kevin J., 2021. "Endogenous forecast switching near the zero lower bound," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 153-169.
    14. Candus, E. & Pfister, C. & Sédillot, F., 2017. "Où s’investit l’épargne des Français ?," Bulletin de la Banque de France, Banque de France, issue 214, pages 5-21.
    15. Émilie Candus & Christian Pfister & Franck Sédillot, 2017. "Where do French people invest their savings?," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 5-22, Winter.
    16. Kevin J. Lansing, 2015. "Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 67-103, October.
    17. Hélène Charasson-Jasson, 2017. "The debt of major French groups: changes and financing choices," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 73-90, Winter.
    18. Parasmo, A. & Cayssials, J.-L., 2017. "Le solde des flux d’investissements directs de la France à nouveau excédentaire en 2016," Bulletin de la Banque de France, Banque de France, issue 214, pages 35-44.
    19. Charasson-Jasson, H., 2017. "L’endettement des grands groupes français : comment évolue-t-il ? Que finance-t-il ?," Bulletin de la Banque de France, Banque de France, issue 214, pages 73-83.
    20. Andréa Parasmo & Jean-Luc Cayssials, 2017. "French net direct investment flows were back in surplus in 2016," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, issue 48, pages 35-44, Winter.
    21. Lucas Hafemann & Paul Rudel & Joerg Schmidt, 2017. "Moving Closer or Drifting Apart: Distributional Effects of Monetary Policy," MAGKS Papers on Economics 201721, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    22. James B. Bullard, 2014. "Income inequality and monetary policy: a framework with answers to three questions," Speech 235, Federal Reserve Bank of St. Louis.

    More about this item

    Keywords

    top incomes; inequality; distribution shocks; redistributive transfer payments; welfare;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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