IDEAS home Printed from https://ideas.repec.org/p/hhs/uulswp/2016_002.html
   My bibliography  Save this paper

Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang

Author

Listed:
  • Tanndal, Julia

    () (Department of Economics, Brown University)

  • Waldenström, Daniel

    () (Uppsala Center for Labor Studies)

Abstract

This study estimates the impact of financial deregulation on top income shares. Using the novel econometric method of constructing synthetic control groups, we show that the ”Big Bang”-deregulations in the United Kingdom in 1986 and Japan 1997–1999 increased the share of pre-tax incomes going to top earners by over 20 percent in the U.K. and over 10 percent in Japan. The effect is strongest in the top five percentiles in the U.K. whereas it is mainly driven by the lower part of the top decile in Japan. The findings are robust to placebo tests, alterna-tive ways to construct synthetic controls and scrutiny of post-treatment trends. Higher earnings among financial sector employees appear to be an important mechanism behind this result.

Suggested Citation

  • Tanndal, Julia & Waldenström, Daniel, 2016. "Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang," Working Paper Series, Center for Labor Studies 2016:2, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uulswp:2016_002
    as

    Download full text from publisher

    File URL: http://ucls.nek.uu.se/digitalAssets/381/381888_32016_2.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Atkinson, A. B. & Piketty, Thomas (ed.), 2010. "Top Incomes: A Global Perspective," OUP Catalogue, Oxford University Press, number 9780199286898.
    2. Jonas Vlachos & Daniel Waldenström, 2005. "International financial liberalization and industry growth," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(3), pages 263-284.
    3. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters,in: Corporate Governance National Bureau of Economic Research, Inc.
    4. William Nickell, 2006. "The CEP-OECD Institutions Data Set (1960-2004)," CEP Discussion Papers dp0759, Centre for Economic Performance, LSE.
    5. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
    6. Jose A. Lopez & Mark M. Spiegel, 2014. "Foreign Entry into Underwriting Services: Evidence from Japan's “Big Bang” Deregulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 445-468, March.
    7. Thorsten Beck & Ross Levine & Alexey Levkov, 2010. "Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States," Journal of Finance, American Finance Association, vol. 65(5), pages 1637-1667, October.
    8. Hubbard, R. Glenn & Palia, Darius, 1995. "Executive pay and performance Evidence from the U.S. banking industry," Journal of Financial Economics, Elsevier, vol. 39(1), pages 105-130, September.
    9. Chiaki Moriguchi & Emmanuel Saez, 2008. "The Evolution of Income Concentration in Japan, 1886-2005: Evidence from Income Tax Statistics," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 713-734, November.
    10. Boustanifar, Hamid & Grant, Everett & Reshef, Ariell, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization Institute Working Papers 266, Federal Reserve Bank of Dallas.
    11. Michal Jerzmanowski & Malhar Nabar, 2013. "Financial Development And Wage Inequality: Theory And Evidence," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 211-234, January.
    12. Anthony Atkinson & Thomas Piketty, 2010. "Top Incomes : A Global Perspective," Post-Print halshs-00754875, HAL.
    13. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2009. "The long-run determinants of inequality: What can we learn from top income data?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 974-988, August.
    14. David A. Becher & Terry L. Campbell II & Melissa B. Frye, 2005. "Incentive Compensation for Bank Directors: The Impact of Deregulation," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1753-1778, September.
    15. Nickell, William, 2006. "The CEP-OECD institutions data set (1960-2004)," LSE Research Online Documents on Economics 19789, London School of Economics and Political Science, LSE Library.
    16. Anthony Atkinson & Thomas Piketty, 2007. "Top incomes over the twentieth century: A contrast between continental european and english-speaking countries," Post-Print halshs-00754859, HAL.
    17. Atkinson, A. B. & Piketty, Thomas (ed.), 2007. "Top Incomes Over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries," OUP Catalogue, Oxford University Press, number 9780199286881.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marianne Sensier & Fiona Devine, 2017. "Social Mobility and Brexit: A Closer Look At England's 'Left Behind' Communities," The School of Economics Discussion Paper Series 1709, Economics, The University of Manchester.
    2. repec:jid:journl:y:2017:v:25:i:1:p:1-14 is not listed on IDEAS
    3. repec:jid:journl:y:2018:v:25:i:1:p:1-14 is not listed on IDEAS

    More about this item

    Keywords

    Income inequality; Synthetic control method; Institutions;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:uulswp:2016_002. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall) The email address of this maintainer does not seem to be valid anymore. Please ask Katarina Grönvall to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/nekuuse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.