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

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  • 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
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    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. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2018. "Financial structure and income inequality," CEPR Discussion Papers 13330, C.E.P.R. Discussion Papers.
    3. Nishant Yonzan & Laxman Timilsina & Inas Rashad Kelly, 2020. "Economic Incentives Surrounding Fertility: Evidence from Alaska's Permanent Fund Dividend," NBER Working Papers 26712, National Bureau of Economic Research, Inc.
    4. Daniel Waldenström, 2017. "Inequality and the super-rich," Journal of Income Distribution, Ad libros publications inc., vol. 25(1), pages 1-14, March.
    5. repec:jid:journl:y:2018:v:25:i:1:p:1-14 is not listed on IDEAS
    6. Nolan, Brian & Richiardi, Matteo & Valenzuela, Luis, 2018. "The Drivers of Inequality in Rich Countries," MPRA Paper 89806, University Library of Munich, Germany.
    7. Alexander Ludwig & Alexander Monge-Naranjo & Ctirad Slavik & Faisal Sohail, 2019. "Financial Liberalization and Income Inequality: On the Heterogenous Effects of Different Reforms," 2019 Meeting Papers 895, Society for Economic Dynamics.

    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

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