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The impact of household capital income on income inequality: A factor decomposition analysis for Great Britain, Germany and the USA

  • Anna Fräßdorf

    ()

    (University of Bamberg)

  • Markus M. Grabka

    (German Institute for Economic Research, DIW Berlin / SOEP)

  • Johannes Schwarze

    (University of Bamberg, DIW Berlin, and IZA, Bonn)

This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for Great Britain, the SOEP for West Germany, and the PSID for the USA, a factor decomposition method described by Shorrocks (1982) is applied. The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and its share in disposable income has risen in recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2008-89.pdf
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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 89.

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Length: 23 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2008-89
Contact details of provider: Web page: http://www.ecineq.org
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  11. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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  14. Markus M. Grabka, 2007. "Codebook for the $PEQUIV File 1984-2006: CNEF Variables with Extended Income Information for the SOEP," Data Documentation 21, DIW Berlin, German Institute for Economic Research.
  15. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  16. Peter Franz, . "Welche Ursachen hat die Spreizung der Lohneinkommen in den USA? Aktuelle Aspekte der Forschung und der politischen Diskussion," IWH Discussion Papers 65, Halle Institute for Economic Research.
  17. Smeeding, Timothy M & Weinberg, Daniel H, 2001. "Toward a Uniform Definition of Household Income," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 47(1), pages 1-24, March.
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