Taxation and inequality: A revisionary study of changing income inequality in Finland, 1961–2005

Abstract

ABSTRACT Income inequality rose rapidly in Finland in the late 1990s and early 2000s. The prevailing discourse attributes this increase to a major tax reform in 1993. However, using time-series analysis and a novel profitability–pay-out metric, the present article argues that a correlation exists between profitability and the income share of the top 1 percent, the latter having been a driver of inequality. The article covers a 45-year period during which profitability and inequality first declined and then rose. The study demonstrates that while taxation has exerted an impact, profitability may also have been a fundamental factor behind changing inequality.