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Potential Determinants of Top Income Inequality

Author

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  • Saikat Sarkar

    (The School of Business and Economics, University of Jyväskylä)

  • Matti Tuomala

    (School of Management, University of Tampere)

Abstract

Using the data series produced from the collective research project on the dynamics of income distribution (Atkinson and Piketty 2007, 2010) we have studied the effect of different economic factors on top income inequality in the Anglo-Saxon countries (Australia, Canada, New Zealand, UK, USA). These effects turn out to be different for individual countries. The bubbles of financial market explain the surge in top income inequality in the United States. Our results reveal that the bubbles of financial market increase top income inequality, although the economic growth rate fails to increase top income shares in the United States. The effect of economic growth rate on top income inequality is also time varying in the Anglo Saxon region. The positive economic growth rate of post 1980 turns out to be pro rich but the economic growth rate of pre 1980 does not promote the top income inequality. The top marginal tax rate and government expenditure may have an equalizing effect by reducing income of the rich, though the impact of financial development on top income inequality is inconclusive.

Suggested Citation

  • Saikat Sarkar & Matti Tuomala, 2010. "Potential Determinants of Top Income Inequality," Working Papers 1077, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:1077
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    File URL: http://urn.fi/urn:isbn:978-951-44-8055-3
    File Function: First version, 2010
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    Cited by:

    1. Frey, Christian & Schaltegger, Christoph A., 2016. "Progressive taxes and top income shares: A historical perspective on pre- and post-tax income concentration in Switzerland," Economics Letters, Elsevier, vol. 148(C), pages 5-9.
    2. Christian Frey & Christoph Gorgas & Christoph A. Schaltegger, 2017. "The Long Run Effects of Taxes and Tax Competition on top Income Shares: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 792-820, December.
    3. Michael, Bryane & Hartwell, Christopher A. & Ho, Gary, 2013. "Does Financial Market Development Explain (or at Least Predict) the Demand for Wealth Management and Private Banking Services in Developing Markets?," EconStor Preprints 109960, ZBW - Leibniz Information Centre for Economics.

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