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Trends in Top Income Shares in Finland

Author

Listed:
  • Marja Riihelä
  • Risto Sullström
  • Matti Tuomala

    (School of Management, University of Tampere)

Abstract

This paper provides new evidence about the evolution of top incomes in Finland over the period 1966 - 2002. Using micro data we construct estimates of shares of top income groups. The paper shows how the proportion of income earned by the very richest one per cent has changed over time. It shows a U-shaped pattern over this period. The total share of the highest earners fell consistently between the mid 1960s and the beginning of the 1990s but then began to rise. The results bring out clearly how the major equalization from the mid 1960s to the mid 1990s has been reversed, taking the shares of top income groups back to levels of inequality or even higher found 40 years ago. The main factor that has driven up the top one per cent income share in Finland after the mid 1990s is in an unprecedented increase in the fraction of capital income which is in 2002 52 per cent of incomes in the top one per cent group. Therefore the composition of high incomes at the end of period considered is very different from those earlier years of this period. We argue in this paper that the 1993 tax reform is one of the key factors responsible for this trend. Our results suggest that the decline in income progressivity since the mid 1990s is a central factor explaining the increase of top income shares in Finland.

Suggested Citation

  • Marja Riihelä & Risto Sullström & Matti Tuomala, 2005. "Trends in Top Income Shares in Finland," Working Papers 0542, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:0542
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    File URL: http://urn.fi/urn:isbn:951-44-6354-4
    File Function: First version, 2005
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    Citations

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    Cited by:

    1. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2007. "What Determines Top Income Shares? Evidence from the Twentieth Century," SSE/EFI Working Paper Series in Economics and Finance 676, Stockholm School of Economics.
    2. Timothy Neal, 2013. "Using Panel Co-Integration Methods To Understand Rising Top Income Shares," The Economic Record, The Economic Society of Australia, vol. 89(284), pages 83-98, March.

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