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The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA

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Author Info

  • Fräßdorf, Anna

    ()
    (University of Bamberg)

  • Grabka, Markus M.

    ()
    (DIW Berlin)

  • Schwarze, Johannes

    (University of Bamberg)

Abstract

This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for Great Britain, the SOEP for West Germany, and the PSID for the USA, a factor decomposition method described by Shorrocks (1982) is applied. The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and its share in disposable income has risen in recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3492.

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Length: 26 pages
Date of creation: May 2008
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2011, 9 (1), 35 - 56
Handle: RePEc:iza:izadps:dp3492

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Keywords: inequality; CNEF; capital income; factor decomposition;

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Cited by:
  1. Joachim R. Frick & Markus M. Grabka, 2009. "Accounting for Imputed and Capital Income Flows in Income Inequality Analyses," SOEPpapers on Multidisciplinary Panel Data Research 254, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Kai Daniel Schmid & Ulrike Stein, 2013. "Explaining Rising Income Inequality in Germany, 1991-2010," IMK Studies 32-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Fuest, Clemens & Niehues, Judith & Peichl, Andreas, 2009. "The Redistributive Effects of Tax Benefit Systems in the Enlarged EU," IZA Discussion Papers 4520, Institute for the Study of Labor (IZA).

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