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

  • Fräßdorf, Anna

    ()

    (University of Bamberg)

  • Grabka, Markus M.

    ()

    (DIW Berlin)

  • Schwarze, Johannes

    (University of Bamberg)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3492.

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Length: 26 pages
Date of creation: May 2008
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2011, 9 (1), 35 - 56
Handle: RePEc:iza:izadps:dp3492
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  4. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P., 2007. "Using the P90/P10 Index to Measure US Inequality Trends with Current Population Survey Data: A View from Inside the Census Bureau Vaults," IZA Discussion Papers 2839, Institute for the Study of Labor (IZA).
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  15. Jantti, Markus, 1997. "Inequality in Five Countries in the 1980s: The Role of Demographic Shifts, Markets and Government Policies," Economica, London School of Economics and Political Science, vol. 64(255), pages 415-40, August.
  16. Fei, John C H & Rainis, Gustav & Kuo, Shirley W Y, 1978. "Growth and the Family Distribution of Income by Factor Components," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 17-53, February.
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