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Capitalist systems and income inequality

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  • Ranaldi, Marco
  • Milanović, Branko

Abstract

The paper investigates the relationship between compositional inequality (how the shares of capital and labor income vary along income distribution) and inter-personal income inequality. Using a new methodology and data from 47 countries covering the period 1995–2018, we show that higher compositional inequality is associated with higher inter-personal inequality. This is clearly shown by Latin American countries and India. Nordic countries are exceptional because they combine high compositional inequality with low inter-personal inequality. Their exceptionalism is attenuated when pension income received from largely government-mandated accumulated savings is added to capital income. The analysis shows the theoretical possibility of societies where low compositional inequality may be combined with high income inequality. Currently, China and the United States come closest to that position.

Suggested Citation

  • Ranaldi, Marco & Milanović, Branko, 2022. "Capitalist systems and income inequality," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 20-32.
    • Handle: RePEc:eee:jcecon:v:50:y:2022:i:1:p:20-32
    DOI: 10.1016/j.jce.2021.07.005
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    Cited by:

    1. Wan, Haiyuan & Gustafsson, Björn Anders & Wang, Yingfei, 2024. "Convergence of Inequality Dimensions in China: Income, Consumption, and Wealth from 1988 to 2018," IZA Discussion Papers 16719, Institute of Labor Economics (IZA).
    2. Marco Ranaldi, 2022. "Income Composition Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 68(1), pages 139-160, March.
    3. Petar Peshev & Kristina Stefanova & Ivan Bozhikin & Radostina Stamenova & Ivanina Mancheva, 2022. "Is income inequality in Bulgaria underestimated in survey data?," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 301-326.
    4. Roberto Iacono & Marco Ranaldi, 2023. "The Evolution of Income Composition Inequality in Italy, 1989–2016," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 124-149, March.
    5. Luca Giangregorio & Davide Villani, 2023. "Income inequality, top shares of income and social classes in the 21st century," JRC Working Papers on Social Classes in the Digital Age 2023-05, Joint Research Centre.
    6. Yonatan Berman & Branko Milanovic, 2020. "Homoploutia: Top Labor and Capital Incomes in the United States, 1950-2020," LIS Working papers 806, LIS Cross-National Data Center in Luxembourg.
    7. Petrova, Bilyana & Ranaldi, Marco, 2021. "Determinants of Income Composition Inequality," SocArXiv vyrz7, Center for Open Science.
    8. Marco Ranaldi & Elisa Palagi, 2022. "Heterogeneity in Macroeconomics: The Compositional Inequality Perspective," LEM Papers Series 2022/30, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    9. Mattauch, Linus & Klenert, David & Stiglitz, Joseph E. & Edenhofer, Ottmar, 2022. "Overcoming wealth inequality by capital taxes that finance public investment," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 383-395.
    10. Carlo D’Ippoliti & Francesco Linguanti, 2023. "Inequality, Consumption Emulation, and Growth," Review of Radical Political Economics, Union for Radical Political Economics, vol. 55(4), pages 577-590, December.
    11. Andrea Bernini & Olaf J. de Groot, 2024. "The impact of trade on income inequality in Mexico," Economics Series Working Papers 1036, University of Oxford, Department of Economics.
    12. Antonelli, Cristiano & Tubiana, Matteo, 2023. "The rate and direction of technological change and wealth and income inequalities in advanced countries," Technological Forecasting and Social Change, Elsevier, vol. 191(C).

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    More about this item

    Keywords

    Inequality; Capitalism; Gini; Compositional inequality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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