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The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA

Author

Listed:
  • Fräßdorf, Anna

    (University of Bamberg)

  • Grabka, Markus M.

    (DIW Berlin)

  • Schwarze, Johannes

    (University of Bamberg)

Abstract

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.

Suggested Citation

  • Fräßdorf, Anna & Grabka, Markus M. & Schwarze, Johannes, 2008. "The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA," IZA Discussion Papers 3492, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp3492
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    Cited by:

    1. Jie Li & Alice Y. Ouyang, 2018. "Stock and Labor Market Synchronization and Income Inequality: Evidence from OECD Countries," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01n02), pages 1-20, February.
    2. Frick, Joachim R. & Grabka, Markus M., 2009. "Accounting for Imputed and Capital Income Flows in Income Inequality Analyses," IZA Discussion Papers 4634, IZA Network @ LISER.
    3. Clemens Fuest & Judith Niehues & Andreas Peichl, 2010. "The Redistributive Effects of Tax Benefit Systems in the Enlarged EU," Public Finance Review, , vol. 38(4), pages 473-500, July.
    4. Kai Daniel Schmid & Ulrike Stein, 2013. "Explaining Rising Income Inequality in Germany, 1991-2010," SOEPpapers on Multidisciplinary Panel Data Research 592, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Florence Jaumotte & Carolina Osorio Buitron, 2020. "Inequality: traditional drivers and the role of union power," Oxford Economic Papers, Oxford University Press, vol. 72(1), pages 25-58.
    6. Giuseppina Malerba & Marta Spreafico, 2013. "Income inequality in the European Union: evidence from a panel analysis," DISCE - Working Papers del Dipartimento di Politica Economica ispe0065, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    7. repec:hum:wpaper:sfb649dp2009-035 is not listed on IDEAS
    8. repec:hum:wpaper:sfb649dp2010-057 is not listed on IDEAS

    More about this item

    Keywords

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    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • F00 - International Economics - - General - - - General

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