Income Dispersion Research Articles

Looking beyond the neighbourhood: income inequality and residential segregation in Swedish metropolitan areas, 1991–2010

ABSTRACTIn recent years, residential segregation has become a major issue in the Swedish policy debate. The prevailing view is that residential segregation is a crucial contributing factor to the development of income inequality, since individual income prospects are thought to be influenced by the population characteristics of their neighbourhoods. This study takes the opposite approach and analyses the extent to which, in the period 1991–2010, rising income inequality contributed to the development of residential segregation by income in Swedish metropolitan areas. The period was characterized by unprecedented growth in income inequality, which was associated with a decline in the redistributive power of the welfare state. Residential segregation by income mirrored locally the general trend in income inequality. Another factor was the change in income dispersion in neighbourhoods, relative to the metropolitan areas as a whole, which indicates a tendency towards increased population homogeneity in neighbourhoods with respect to income.

Subjective beliefs about the income distribution and preferences for redistribution

We investigate whether beliefs about the income distribution are associated with political positions for or against redistribution. Using a novel elicitation method, we assess individuals’ beliefs about the shape of the income distribution in the United States. We find that respondents’ beliefs approximate the actual distribution on average. However they tend to overestimate the median income and underestimate the level of inequality. Surprisingly we find that beliefs about overall inequality, measured in terms of income dispersion, play only a marginal role in political positions as well as prospects of future wealth. Political preferences, however, are predicted by first, beliefs about the level of income of the poorest members of society, and second, a belief in an open society with equal opportunities for all. Support for redistribution is lower for people who give higher estimates of the income level of the poorest members of society and for people who perceive that opportunities for upward mobility are available.

Distributional Implications of Joint Tax Evasion

Both buyers and sellers of goods and services may benefit from letting their economic transactions go unrecorded for tax purposes. The supplier reduces his tax burden by underreporting income, whereas the consumer gains from buying a non-taxed lower-priced product. The distributional implications of such joint tax evasion depend on the amounts evaded, on where the evaders on both sides of the market are found in the income distribution and how the financial gain is split between the suppliers and demanders. We use various data sources to identify tax evasion among sellers and buyers of goods and services. Results clearly suggest that the tax-evasion-controlled estimate of income inequality in Norway exhibits more income dispersion than official estimates.

Pareto distribution of income in neoclassical growth models

We construct a neoclassical growth model with heterogeneous households that accounts for the Pareto distributions of income and wealth in the upper tail. In an otherwise standard Bewley model, we feature households' business productivity risks and borrowing constraints, which we find generate the Pareto distributions. Households with low productivity rely on wages and returns from safe assets, while high productivity households choose not to diversify their business risks. The model can quantitatively account for the observed income distribution in the U.S. under reasonable calibrations. Furthermore, we conduct several comparative statics to examine how changes in parameters affect the Pareto distributions. In particular, we find that the change in the top tax rates in the 1980s potentially accounts for much of the observed increase in top income dispersion in the last decades. Our analytical result provides a coherent interpretation for the numerical comparative statics.

EFEITOS DISTRIBUTIVOS DO SALÁRIO MÍNIMO NO MERCADO DE TRABALHO CEARENSE

Este artigo investiga a contribuição do salário mínimo (SM) para o processo de desconcentração dos rendimentos do mercado de trabalho do Estado do Ceará no período 2002-2012. Os microdados utilizados são oriundos da Pesquisa Nacional por Amostra de Domicílios (PNAD) do Instituto Brasileiro de Geografia e Estatística (IBGE). Utilizou-se a metodologia de simulação proposta em DiNardo, Fortin e Lemieux (1996) a partir da estimativa de funções densidade Kernel contrafactuais. As simulações foram realizadas para pessoas do gênero feminino e masculino. Os resultados revelaram por meio das decomposições que o salário mínimo, o grau de formalização e os atributos pessoais tiveram impactos desconcentradores para trabalhadores do gênero feminino e masculino. Todavia, para as mulheres, o efeito desconcentrador do salário mínimo é mais intenso na amostra em relação aos homens. Em síntese, as simulações apontam a importância do salário mínimo para a redução da dispersão dos rendimentos do trabalho no período recente.

The influence of fiscal policy on income inequality in European Union’s member states

Poor growth performance over the past decades in Europe has increased concerns for rising income discrepancies and social exclusion. European authorities have recently launched the Europe 2020 strategy which aims to improve social inclusion in Europe on top of already existing European regional policies aiming to reduce regional disparities through stimulating growth in areas where incomes are relatively low. While it is most common to confine measures of inequality to national borders, the existence of such union-wide objectives and policies motivates measuring income dispersion among all Europeans in this paper. Fiscal policy is a powerful tool that changes the distribution of income in either direction, up or down. In this context, the present paper reviews the evolution of income inequality in EU member countries and figures out how fiscal policy (direct taxes) has influenced these outcomes. The paper also examines the contributions of both tax and expenditure policies in reducing income inequality in the EU, highlighting fiscal policy’s impact in different EU member countries.

Decomposing Consumption Inequality: The Contribution of Income Dispersion and Taxation

We evaluate the ability of the income tax to insure household consumption against income shocks. To do this, changes in insurance are decomposed into active insurance changes (due to changes in the tax code), passive insurance change (due to changes in the income distribution), and residual behavioral insurance changes. From 1967 to 2010, both active and passive insurance changes had large, partly offsetting effects, such that the overall effect on insurance was minimal. In particular, active insurance changes decreased insurance and passive insurance changes increased insurance suggesting that, tax policy and the nonlinearity of the tax code influence consumption inequality.

The Welfare Effects of Metering Ties

Critics of current tying doctrine argue that metering ties can increase consumer welfare and total welfare without increasing output and that they generally increase both welfare measures. Contrary to those claims, we prove that metering ties always lower consumer welfare and total welfare unless they increase capital good output. We further show that under market conditions we argue are realistic (which include a lognormal distribution of usage rates that are independently distributed from per-usage valuations), metering ties always harm consumer welfare, even when output increases. Under those market conditions, we show that whether metering ties raise or lower total welfare depends on the dispersion of desired usage, the cost structure, and the dissipation of profits caused by metering. For realistic cost values, metering ties will reduce total welfare if the dispersion in desired usage of the metered good is below 0.62. (For comparison, 0.74 is the dispersion of income in the U.S.) If 5% of metering profits are dissipated, metering will reduce total welfare for all cost levels unless the dispersion in desired usage exceeds 150% of the dispersion of income in the U.S.

Individual Income Inequality and Its Drivers in Indonesia: A Theil Decomposition Reassessment

This article employs a Theil decomposition analysis to examine various dimensions of income inequality, using the 2007 Indonesian Family Life Survey. The empirical strategy is based on the individual-level income data—instead of group means as in the existing literature—and thus accounts for within-group dispersion of individual incomes. The decomposition exercise reveals that income inequality across education levels constitutes about 13 % of total income inequality. The urban–rural and interprovincial dimensions individually explain 6.0–6.5 %, but the contribution of income inequality by genders appears to be negligible. The findings highlight educational reform as an effective redistributive policy.

Issue of Convergence - A Study of Selected Western States of India

There is no point to disagree that in recent time inequality has become a growing socio-economic problem. This problem has turned out to be more evident since the economic reforms of 1991. This paper attempts to examine the issue of convergence in terms of per capita net state domestic product in three selected western states of India from 1980–1981 to 2012–2013 and to that end we have applied the Barro regression analysis. But as there emerges non-stationarity problem in the context of absolute as well as conditional convergence, we have introduced time as an argument on the assumption of non-stochastic trend of the time series data. There has been strong evidence of absolute beta-convergence in Gujarat, Maharashtra and Rajasthan in the presence of time as an argument. We have also found strong evidence of conditional convergence in two states except Maharashtra. But there is no evidence of the declining dispersion of incomes among these three states. Sigma divergence among these states as implied by the dispersion of incomes among the states has mounted over time. Both liberalization and Crisis have no significant effect on the reduction of inter-state disparity.

Regional Inequality, Convergence, and its Determinants - A View from Outer Space

This paper provides a new data set of regional income inequalities within countries based on satellite nighttime light data. We first empirically study the relationship between luminosity data and regional incomes for those countries where regional income data are available. We subsequently use our estimation results for an out-ofsample prediction of regional incomes based on the luminosity data, which allows us to investigate regional income differentials in developing countries as well, where official income data are lacking. Based on the predicted incomes, we calculate commonly used measures of regional inequality within countries. Investigating changes in the dispersion of regional incomes over time reveals that approximately 71-80% of all countries face sigma-convergence. Finally, we study different major determinants of the level of regional inequality based on cross-section data. Panel regressions investigate the within-country changes in inequality, i.e., the determinants of the convergence process. We find evidence for an N-shaped relationship between development and regional inequality. Geography, mobility and trade openness are also highly important.

Why Academic Quality in Higher Education Declines

We investigate the choice of quality, or academic content, in higher education in a two-sector model. Individuals are differentiated according to their cost of acquiring human capital. A higher academic quality increases productivity upon training, but is also associated with higher cost of acquiring skill. We consider both a differentiated university system in which quality is tailored to the individual need, and a uniform quality system being politically determined. The former yields a higher income dispersion. Average quality decreases under both systems when the skill premium increases. Moving from a single stage to a two-stage scheme reduces quality in the first stage and increases quality in the second stage. Increasing differentiation in higher education can decrease student effort and skill of medium ability types.

Income Inequality in the South–South Integration

Some of the findings from new trade and economic geography theory are quite critical concerning the South-South agreements. This study contributes to the discussion by means of different empirical analyses of a representative set of South-South integrations. The income developments of its member states are studied with a special focus on income dispersion between and within member states. The results show that income dispersion has slightly decreased, within and between member states. The findings are placed in relation to growth models and beta convergence as other studies have found ambivalent results for growth and convergence in South-South integration areas.

Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework

In recent decades income inequality has increased in many developed countries but the role of tax and transfer reforms is often poorly understood. We propose a new method allowing for the decomposition of historical changes in income distribution and redistribution measures into: (i) the immediate effect of tax‐transfer policy reforms in the absence of behavioral responses; (ii) the effect of labor supply responses induced by these reforms; and (iii) a third component allowing us to explore the effect of changes in the distribution of a wide range of determinants, including the effect of employment changes not induced by policy reforms. The application of the decomposition to Australia reveals that the direct effect of tax‐transfer policy reforms accounts for half of the observed increase in income inequality between 1999 and 2008, while the increased dispersion of wages and capital incomes also played an important role.

Bilateral trade and similarity of income distributions: The role of second moments

This letter uses an augmented gravity model to revisit the effect of similarity in income distributions on bilateral trade flows. We document a robust new empirical regularity: while differences in average incomes between two countries increase trade, differences in income dispersion reduce it. Our result sheds new light on the Linder hypothesis and stresses the importance of demand-based theories of international trade.

Hedonic Quality, Social Norms, and Environmental Campaigns

We analyse how market competition in a vertically differentiated polluting industry is affected by product variants that comply at different levels with "green" social norms. A green consumption behavior is considered as a byword of good citizenship. Consumer preferences depend on a combination of hedonic quality and compliance with social norms. Assuming that the high hedonic quality variant complies less with these norms than the low hedonic quality variant, we characterize different equilibrium configurations which appear as a result of both the intensity of such norms and the country-specific income dispersion. Then, we focus on the role that institutions may have in using these norms to reduce pollution emissions.

Variability of household disposable income per capita by types of residence in Poland

The dispersion of household disposable income per capita in each class of residence (i.e. six) was estimated for households in Poland. Then, the dispersion of income between the classes was analysed. The computation was carried out separately for subsequent years from 1998 to 2012. The study shows that the households in Poland are differentiated with regard to income per capita by types of residence, however, the differences within the groups are much bigger than the differences between the groups. What is particularly surprising, the share of between-group variance in total variance in the population under study was negligible small (just a few percent) compared to the share of the mean within-group variance (more than 90 percent).

Sacrifice and Stigma: Managing Religious Risk

This article develops a theoretical explanation for the incidence of sacrifice and stigma or “strictness” that—unlike the extant literature—explicitly incorporates a supernatural motive for religiosity. This innovation permits a precise delineation of religious risks and leads to the critical insight that “strictness” is an instrument of mutually beneficial risk mitigation. The theory yields alternative explanations for all empirical regularities on the incidence of strictness that the club model explains, including the seemingly anomalous labor market behavior of Ultra‐Orthodox Jews in Israel, the high lethality of extremist religious sects, and the positive correlation between strictness and social service provision. Among the attributes that distinguish the risk mitigation approach from the club model are: its explanation of observed income dispersion within strictness categories that is substantially greater than that implied by the club model; its prediction that the positive correlation between strictness and exclusivity is a causal relationship in which exclusivity is causally prior to strictness; and its demonstration that variation in the risk mitigation benefits members derive from strictness is at least as important as variation in the opportunity costs of strictness in explaining variation in the levels of strictness employed across denominations and sects.

Housing markets and residential segregation: Impacts of the Michigan school finance reform on inter- and intra-district sorting

Local financing of public schools in the U.S. leads to a bundling of two distinct choices – residential choice and school choice – and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A led to a decline in neighborhood sorting within education markets, as measured by changes in the value of housing stock and several socioeconomic indicators. We also find that the reform affected the dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest spending school districts, while decreasing the same in the highest spending districts. However, there is a continued high demand for residence in the highest spending communities. These findings are robust to various alternative definitions of “education market”, and survive several sensitivity checks. These spatial segregation patterns are not replicated in neighboring Ohio that did not face similar school finance equalization.

Optimal Level of Government Debt: Matching Wealth Inequality and the Fiscal Sector

We calibrate an incomplete markets large scale OLG model to the US income and wealth distribution and examine the effects of alternative government debt levels and adjustment policies on macroeconomic aggregates and welfare. We find that the government should hold negative debt. Due to the high degree of wealth and income dispersion ex ante lifetime utility increases with increasing wages (falling interest rates) by around 6% of lifetime consumption at optimal debt levels. The optimal level depends on the adjustment policy can vary by up to 70% of GDP (between -180% and -110%). With lower government debt, high income/wealth agents are always worse off. Adjusting transfers benefits the lowest income/wealth group. The largest gains are, however, experienced by agents in the middle of the income/wealth distribution: they benefit from higher wages and transfers but do not lose too much capital income.