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Do Rising Top Incomes Lift All Boats?

Author

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  • Andrews, Dan

    () (OECD)

  • Jencks, Christopher

    () (Harvard Kennedy School)

  • Leigh, Andrew

    () (Australian National University)

Abstract

Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile's income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent. However, our estimates imply that it would take 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

Suggested Citation

  • Andrews, Dan & Jencks, Christopher & Leigh, Andrew, 2010. "Do Rising Top Incomes Lift All Boats?," IZA Discussion Papers 4920, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4920
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    Cited by:

    1. Herzer, Dierk & Vollmer, Sebastian, 2013. "Rising top incomes do not raise the tide," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 504-519.
    2. Burkhauser, Richard V. & De Neve, Jan-Emmanuel & Powdthavee, Nattavudh, 2016. "Top Incomes and Human Well-being Around the World," IZA Discussion Papers 9677, Institute for the Study of Labor (IZA).
    3. Stephan Klasen & Nathalie Scholl & Rahul Lahoti & Sophie Ochmann & Sebastian Vollmer, 2016. "Inequality – Worldwide Trends and Current Debates," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 209, Courant Research Centre PEG.
    4. Raymundo M. Campos-Vazquez & Emmanuel Chavez & Gerardo Esquivel, 2017. "Growth is (really) good for the (really) rich," The World Economy, Wiley Blackwell, vol. 40(12), pages 2639-2675, December.
    5. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2009. "The long-run determinants of inequality: What can we learn from top income data?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 974-988, August.
    6. Peter Hoeller, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 4. Top Incomes," OECD Economics Department Working Papers 927, OECD Publishing.
    7. Josh Bivens & Lawrence Mishel, 2013. "The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 57-78, Summer.
    8. Tuominen Elina, 2016. "Changes or levels? Reassessment of the relationship between top-end inequality and growth," Working Papers 1609, University of Tampere, School of Management, Economics.
    9. Michael, Bryane & Hartwell, Christopher A. & Ho, Gary, 2013. "Does Financial Market Development Explain (or at Least Predict) the Demand for Wealth Management and Private Banking Services in Developing Markets?," EconStor Preprints 109960, ZBW - German National Library of Economics.
    10. Cabral, René & García-Díaz, Rocío & Mollick, André Varella, 2016. "Does globalization affect top income inequality?," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 916-940.
    11. Santo Milasi, 2014. "Top Income Shares and Budget Deficits," Rivista di Politica Economica, SIPI Spa, issue 1, pages 383-406, January-M.
    12. Dash, Bharatee Bhushan & Mukherjee, Sacchidananda, 2013. "Does Political Competition Influence Human Development? Evidence from the Indian States," Working Papers 13/118, National Institute of Public Finance and Policy.
    13. Michal Brzezinski, 2013. "Income Polarization and Economic Growth," LIS Working papers 587, LIS Cross-National Data Center in Luxembourg.
    14. Tuominen Elina, 2016. "Top-end inequality and growth: Empirical evidence," Working Papers 1608, University of Tampere, School of Management, Economics.
    15. Risso, W. Adrián & Punzo, Lionello F. & Carrera, Edgar J. Sánchez, 2013. "Economic growth and income distribution in Mexico: A cointegration exercise," Economic Modelling, Elsevier, vol. 35(C), pages 708-714.

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    Keywords

    national income; inequality; income distribution; growth;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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