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The effects of asset prices on income inequality: Redistribution policy does matter

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  • Kim, Hyoungjong
  • Rhee, Dong-Eun

Abstract

Income inequality in some developed countries has been steadily increasing over the past two decades, contrasting Kuznets' hypothesis that income inequality will improve after a certain income level. During that same period, asset prices rose significantly, blamed for increases in inequality. Are rising asset prices really the cause of rising inequality? Using the data of 32 developed countries across 1980–2018, this research empirically reveals that a country's stance toward redistribution significantly determines whether asset prices affect income inequality. The results indicate that an increase in house prices significantly increases income inequality in countries with weak income redistribution policies, while asset prices do not affect income distribution in countries with strong redistribution policies. An improvement in income inequality does not occur spontaneously but requires active government intervention.

Suggested Citation

  • Kim, Hyoungjong & Rhee, Dong-Eun, 2022. "The effects of asset prices on income inequality: Redistribution policy does matter," Economic Modelling, Elsevier, vol. 113(C).
  • Handle: RePEc:eee:ecmode:v:113:y:2022:i:c:s0264999322001456
    DOI: 10.1016/j.econmod.2022.105899
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    More about this item

    Keywords

    Income inequality; Financial markets; Redistribution policy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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