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On the Role of Capital Gains in Swedish Income Inequality

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Author Info

  • Roine, Jesper

    () (SITE, Stockholm School of Economics)

  • Waldenström, Daniel

    () (Department of Economics)

Abstract

Realized capital gains are typically disregarded in the study of income inequality. We show that in the case of Sweden this severely underestimates the actual increase in inequality and, in particular, top income shares during recent decades. Using micro panel data to average incomes over longer periods and re-rank individuals according to income excluding capital gains, we show that capital gains indeed are a reoccurring addition to rather than a transitory component in top incomes. Doing the same for lower income groups, however, makes virtually no difference. We also try to find the roots of the recent surge in capital gains-driven inequality in Sweden since the 1980s. While there are no evident changes in terms of who earns these gains (high wage earners vs. top capital income earners), the primary driver instead seems to be the drastic asset price increases on the post-1980 deregulated financial markets.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2011:7.

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Length: 29 pages
Date of creation: 13 Apr 2011
Date of revision:
Handle: RePEc:hhs:uunewp:2011_007

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Top incomes; Income inequality; Capital gains; Capital income; Sweden; Welfare state;

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References

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  1. Edin, Per-Anders & Fredriksson, Peter, 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Working Paper Series 2000:19, Uppsala University, Department of Economics.
  2. Roine, Jesper & Waldenstrom, Daniel, 2008. "The evolution of top incomes in an egalitarian society: Sweden, 1903-2004," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 366-387, February.
  3. Jesper Roine & Daniel Waldenström, 2011. "Common Trends and Shocks to Top Incomes: A Structural Breaks Approach," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 832-846, August.
  4. Chiaki Moriguchi & Emmanuel Saez, 2006. "The Evolution of Income Concentration in Japan, 1886-2002: Evidence from Income Tax Statistics," NBER Working Papers 12558, National Bureau of Economic Research, Inc.
  5. Roine, Jesper & Waldenström, Daniel, 2005. "Top Incomes in Sweden over the Twentieth Century," Working Paper Series in Economics and Finance 602, Stockholm School of Economics.
  6. Domeij, David & Floden, Martin, 2009. "Inequality Trends in Sweden 1978-2004," Working Paper Series in Economics and Finance 720, Stockholm School of Economics.
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Cited by:
  1. Jacob, Martin, 2011. "Tax Regimes and Capital Gains Realizations," Working Paper Series, Center for Fiscal Studies 2011:9, Uppsala University, Department of Economics.

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