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Capital Income Shares and Income Inequality in 16 EU Member Countries

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  • Eva Schlenker
  • Kai D. Schmid

Abstract

In this paper, we estimate the effect of changes in capital income shares on inequality of gross household income. Using EU-SILC data covering 16 EU countries from 2005 to 2011 we find that the level of capital income shares is positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. At the mean of the distribution of capital income a 1 percentage point increase of the capital share is associated with a 0.8 percentage point increase of the Gini coefficient of gross household income. Our findings imply that in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades.

Suggested Citation

  • Eva Schlenker & Kai D. Schmid, 2014. "Capital Income Shares and Income Inequality in 16 EU Member Countries," IAW Discussion Papers 109, Institut für Angewandte Wirtschaftsforschung (IAW).
    • Handle: RePEc:iaw:iawdip:109
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    Cited by:

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    2. Alessandro Bellocchi, 2020. "Labor share is falling down, but which one?," Working Papers 2001, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2020.
    3. Francesco Bloise & Irene Brunetti & Valeria Cirillo, 2022. "Firm strategies and distributional dynamics: labour share in Italian medium-large firms," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(2), pages 623-655, July.
    4. Kai Daniel Schmid & Andreas Peichl & Moritz Drechsel-Grau, 2015. "Querverteilung und Spitzeneinkommen in Deutschland," IMK Report 108-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Corneo Giacomo, 2015. "Kreuz und quer durch die deutsche Einkommensverteilung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 16(2), pages 109-126, June.
    6. Anita Szymańska & Małgorzata Zielenkiewicz, 2022. "Declining Labour Income Share and Personal Income Inequality in Advanced Countries," Sustainability, MDPI, vol. 14(15), pages 1-14, August.

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    More about this item

    Keywords

    Factor Income Shares; Income Inequality; EU-SILC; Fixed Effects;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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