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Capital income shares and income inequality in the European Union

  • Schlenker, Eva
  • Schmid, Kai D.

In this paper, we measure the effect of changing capital income shares upon inequality of gross household income. Using EU-SILC data covering 17 EU countries from 2005 to 2011 we find that capital income shares are positively associated with the concentration of gross household income. Moreover, we show that the transmission of a shift in capital income shares into the personal distribution of income depends on the concentration of capital income in an economy. Using fixed effect models we find that changing capital income shares play an important role in the development of household income inequality. Hence, in many industrialized countries income inequality has by no means evolved independently from the observed structural shift in factor income towards a higher capital income share over the last decades.

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Paper provided by University of Hohenheim, Center for Research on Innovation and Services (FZID) in its series FZID Discussion Papers with number 80-2013.

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Date of creation: 2013
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Handle: RePEc:zbw:fziddp:802013
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  1. Andrew Leigh, 2007. "How Closely Do Top Income Shares Track Other Measures of Inequality?," Economic Journal, Royal Economic Society, vol. 117(524), pages F619-F633, November.
  2. Hoover, Gary A. & Giedeman, Daniel C. & Dibooglu, Sel, 2009. "Income inequality and the business cycle: A threshold cointegration approach," Economic Systems, Elsevier, vol. 33(3), pages 278-292, September.
  3. Cecilia García-Peñalosa & Elsa Orgiazzi, 2013. "Factor Components of Inequality: A Cross-Country Study," AMSE Working Papers 1318, Aix-Marseille School of Economics, Marseille, France.
  4. Krueger, Dirk & Perri, Fabrizio & Pistaferri, Luigi & Violante, Giovanni L, 2009. "Cross Sectional Facts for Macroeconomists," CEPR Discussion Papers 7582, C.E.P.R. Discussion Papers.
  5. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report 436, Federal Reserve Bank of Minneapolis.
  6. Adler, Martin & Schmid, Kai Daniel, 2013. "Factor Shares and Income Inequality. Empiral Evidence from Germany 2002 – 2008," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 133(2), pages 121-132.
  7. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
  8. Alfonso Arpaia & Esther Pérez & Karl Pichelmann, 2009. "Understanding Labour Income Share Dynamics in Europe," European Economy - Economic Papers 379, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  9. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
  10. Luci Ellis & Kathryn Smith, 2007. "The global upward trend in the profit share," BIS Working Papers 231, Bank for International Settlements.
  11. Anna Fräßdorf & Markus Grabka & Johannes Schwarze, 2011. "The impact of household capital income on income inequality—a factor decomposition analysis for the UK, Germany and the USA," Journal of Economic Inequality, Springer, vol. 9(1), pages 35-56, March.
  12. 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).
  13. Daniele Checchi & Cecilia García Peñalosa, 2005. "Labour Market Institutions and the Personal Distribution of Income in the OECD," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1009, Universitá degli Studi di Milano.
  14. Emilie Daudey & Cecilia Garcia-Penalosa, 2007. "The personal and the factor distributions of income in a cross-section of countries," Journal of Development Studies, Taylor & Francis Journals, vol. 43(5), pages 812-829.
  15. Ryan, Paul, 1996. "Factor Shares and Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 106-26, Spring.
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