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Nonlinearity and cross-country dependence of income inequality

Author

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  • Leena Kalliovirta

    (University of Helsinki, Finland)

  • Tuomas Malinen

    () (University of Helsinki, Finland)

Abstract

We use top income data and the newly developed regime switching Gaussian mixture vector autoregressive model to explain the dynamics of income inequality in developed economies within the last 100 years. Our results indicate that the process of income inequality consists of two equilibriums identifiable by high inequality, high income fluctuations and low inequality, low income fluctuations. Our results also show that income inequality in the U.S. is the driver of income inequality in other developed economies. Both economic and institutional changes emanating from the U.S. explain this dominance.

Suggested Citation

  • Leena Kalliovirta & Tuomas Malinen, 2015. "Nonlinearity and cross-country dependence of income inequality," Working Papers 358, ECINEQ, Society for the Study of Economic Inequality.
  • Handle: RePEc:inq:inqwps:ecineq2015-358
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2015-358.pdf
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    References listed on IDEAS

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    1. Andrew G. Berg & Jonathan D. Ostry, 2017. "Inequality and Unsustainable Growth: Two Sides of the Same Coin?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 792-815, November.
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    15. Charles M. Beach & Ross Finnie & David Gray, 2010. "Long‐Run Inequality And Short‐Run Instability Of Men'S And Women'S Earnings In Canada," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(3), pages 572-596, September.
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    Cited by:

    1. repec:spr:joecin:v:14:y:2016:i:3:d:10.1007_s10888-016-9334-6 is not listed on IDEAS
    2. Kirschenmann, Karolin & Malinen, Tuomas & Nyberg, Henri, 2016. "The risk of financial crises: Is there a role for income inequality?," Journal of International Money and Finance, Elsevier, vol. 68(C), pages 161-180.
    3. Tuomas Malinen, 2016. "Does income inequality contribute to credit cycles?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(3), pages 309-325, September.

    More about this item

    Keywords

    top 1% income share; GMAR; multiple equilibria; developed economies.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D30 - Microeconomics - - Distribution - - - General

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