Top Income Groups Research Articles

Multifaceted Regional Educational Inequality: Evidence from Türkiye

ABSTRACT Educational equality is a priority in sustaining economic and human development. This study examines regional educational inequality in Türkiye by considering educational attainment, income distribution, and education spending. Average years of schooling improved in all regions between 2008 and 2020. The Education Gini and Theil indexes indicate diminishing intra-regional inequality while significant inter-regional differences persist. The income Gini coefficient was unexpectedly found to be negatively correlated with equality in educational attainment for the country and three regions. The results also show the disproportionate dominance of the top income group in the distribution of education spending and the share of education in consumption expenditures. The growing gap in educational expenditures between the top and last quintiles accompanies rising educational attainment. The recent achievement in educational attainment needs to be followed by new programs that address social and spatial educational inequality in Türkiye.

Rising carbon inequality and its driving factors from 2005 to 2015

Carbon inequality is the gap in carbon footprints between the rich and the poor, reflecting an uneven distribution of wealth and mitigation responsibility. Whilst much is known about the level of inequality surrounding responsibility for greenhouse gas (GHG) emissions, little is known about the evolution in carbon inequality and how the carbon footprints of socio-economic groups have developed over time. Inequality can be reduced either by improving the living standards of the poor or by reducing the overconsumption of the rich, but the choice has very different implications for climate change mitigation. Here, we investigate the carbon footprints of income quintile groups for major 43 economies from 2005 to 2015. We find that most developed economies had declining carbon footprints but expanding carbon inequality, whereas most developing economies had rising footprints but divergent trends in carbon inequality. The top income group in developing economies grew fastest, with its carbon footprint surpassing the top group in developed economies in 2014. Developments are driven by a reduction in GHG intensity in all regions, which is partly offset by income growth in developed countries but more than offset by the rapid growth in selected emerging economies. The top income group in developed economies has achieved the least progress in climate change mitigation, in terms of decline rate, showing resistance of the rich. It shows mitigation efforts could raise carbon inequality. We highlight the necessity of raising the living standard of the poor and consistent mitigation effort is the core of achieving two targets.

Measuring top income shares in the UK

Abstract Information about the share of total income held by the richest 1%, or other top income groups, is increasingly used to discuss inequality levels and trends within and between nations. A top income share is the ratio of the total income held by the top income group divided by total personal income (the ‘income control total’). We compare two approaches to estimating income control totals: the ‘external’ approach used by the World Inequality Database, and an augmented ‘internal’ approach. We argue in favour of the latter, with reference to five desirable properties that a top share series would ideally possess. The choice matters: our augmented ‘internal’ approach yields estimates of the UK top 1% share that are around 2% points higher than the ‘external’ approach.

Functional Form of The Zenga Curve Based on Rohde’s Version of the Lorenz Curve

The Zenga curve is a tool to measure income inequality that represents the income ratio between the bottom income group and the top income group. A proper Zenga curve is a Zenga curve that can detect variations in the Ratio. In this paper, we derive the functional form of the Zenga curve from Rohde's Lorenz curve model. The result of this paper is that the functional form of the Zenga curve from Rohde's version of the Lorenz curve model is a constant. It cannot represent the truly happening phenomenon of inequality.

Falling inequality and the growing capital income share: Reconciling divergent trends in survey and tax data

• Based on a unique array of administrative records and household survey microdata, we provide detailed evidence on inequality trends for the recent period of survey-based inequality reduction in Uruguay (2009–2016). • Inequality trends are sensitive to the data source and inequality measure. • Synthetic indices decreased, but the top 1% and 0.1% income shares fell in household survey data, whereas in the corrected administrative data, they remained steady and even increased in 2016. • Differences result from increasing inequality in the upper tail of administrative data, mainly driven by a growing share of capital income and particularly dividends. • The probability of reaching top income positions is higher for men, liberal professionals, capital income receivers, and occupations associated to health services. In contrast to the remaining regions of the world, the available evidence from household surveys indicates that most Latin American countries experienced substantial reductions in monetary poverty and personal income inequality in the first 15 years of the 21 st century. However, it is still unclear whether these trends are robust to the inequality index and database. Based on a unique array of matched social security and personal and firm income tax records, and household survey microdata, we provide detailed evidence on inequality trends for the period of survey-based inequality reduction in Uruguay (2009–2016), focusing on the top income groups and the evolution of the capital income share. We correct administrative data to account for informality and social security/income tax underreporting. Trends are sensitive to the data source and inequality measure. Synthetic indices decreased in both datasets and the top income shares diverged. This results from increasing inequality in the upper tail of administrative data, mainly driven by a growing share of capital income, and particularly dividends. The probability of reaching top income positions is higher for men, liberal professionals, capital income receivers, and occupations associated to medical services. In contrast to evidence for developed countries, the financial and tech sectors are less represented. These findings have strong implications for the design of public policies aimed to reduce persistent inequalities in developing countries.

Long-run trends in top income shares: The role of income and population growth

This paper studies the sensitivity of long-run trends in top income shares to differences in top-share measures. While the standard measure fixes a share of the population, we define alternatives that allow variation in both incomes and size of the top group based on defining absolute income thresholds. In an application to United States data, we find that top income share trends over the past century vary somewhat depending on the measure used. Allowing top groups to increase in size after 1980 along with overall economic growth results in a larger increase of top income shares. The historical drops before WWII are sensitive to the choice of income deflator: using GDP inflates interwar top income shares but using CPI deflates them. Altogether, these results recommend using complementary approaches to defining top income groups when measuring long-term top income share trends.

Drawing a Line: Comparing the Estimation of Top Incomes between Tax Data and Household Survey Data

The paper uses the flexibility of household survey data to align their income categories and recipient units with the income categories and units found in data produced by tax authorities. Our analyses, based on a standardized definition of fiscal income, allow us to locate, for top-income groups, the sources of discrepancy. We find, using the cases of the United States, Germany, and France, that the results from survey-based and tax data correspond extremely well (in terms of total income, mean income, composition of income, and income shares) above the 90th percentile and up to the top 1% of the distribution. Information about income composition, available in the US, allows us to investigate the determinants of this gap in the US. About three-fourths of the tax/survey gap is due to differences in non-labor incomes, especially self-employment (business) income. The gap itself may be due to tax-induced re-classification of income from corporate to personal or/and to lower ability of surveys to capture top 1% incomes.

What About the Rest of the Pie? A Dynamic Compositional Approach to Modeling Inequality

ObjectiveTo demonstrate how a novel method enhances our understanding of determinants of inequality.MethodsWe take advantage of recent advances in dynamic models of compositional dependent variables to simultaneously study tradeoffs across multiple slices of the composition of income in the United States between 1947 and 2014.ResultsOur analyses demonstrate the utility of dynamic compositional models of income shares. Factors that increase the income share of the top income group often also increase the income share of the second income group and decrease the shares of lower groups at different rates. Polarization and marginal tax rates have large effects on relative income shares, while returns to labor, returns to capital, and partisan control of Congress have smaller, but statistically significant effects.ConclusionOur suggested approach allows researchers to effectively explore interesting variation across multiple income groups in response to changes in determinants of inequality.

Inequality and the Chinese elite: Between international convergence and national divergence.

This paper considers the position of the Chinese elite in both national and international contexts. I show that the Chinese elite has converged with the global elite in terms of their incomes, and that many senior Chinese executives are at least as well paid as their counterparts in rich countries. Their insertion into the global elite is further demonstrated by their increasing participation in the World Economic Forum. But this international convergence has been mirrored by national divergence: economic inequality has risen within China, extending the distance between elites and the rest of the population. I show that for top income groups, the relative cost of employing a median wage worker for their personal service has plummeted, increasing their entitlements over labor and thus their capacity to dominate their compatriots. This has been accompanied by a dramatic rise in the reliance of the elite on domestic workers, a traditional symbol of social inequality. Thus the convergence of Chinese elites with their international counterparts has gone hand in hand with both rising economic inequality and rising social inequality within China.

Beyond the nation-state narrative: an empirical inquiry into the cross-country and cross-income-group carbon consumption patterns

AbstractThe concern for inequality, growth and development is undoubtedly crucial in the context of climate change mitigation and adaptation. However, most studies either rely on the nation-state estimates of carbon emissions to propose a uniform nation-wide growth (or degrowth) strategy, or they tailor the method to assess the inequality of one country at a time, making a cross-country cross-income comparison difficult. To fill this analytical gap, we synthesize the existing methods of emission calculations and calculate the level of carbon emissions associated with given income deciles of household consumption in five countries, namely China, Germany, India, the UK and USA. We find that the within-country inequality varies among countries, with the ratio between the top and bottom income deciles ranging from three to nine at the household level. We also find that the carbon emissions of the top income group in urban China is almost comparable to that of their peer group in the US, UK and Germany. Based on these results, we discuss the use of the remaining global carbon budget in the context of development and inequality.

Income inequality in Finland, 1865–2019

ABSTRACT This study contributes to long-run inequality discussions by presenting a new series of Finnish income inequality statistics for the years 1865–2019. It shows that income inequality rose and peaked during the industrialisation phase at the turn of the nineteenth and twentieth centuries. Overall, top income shares decreased during the first part of the twentieth century, mainly as a result of shocks to capital (e.g. civil war, WWI & WWII) and rising taxation. After 1948, income inequality rebounded slightly until the advent of the welfare state in the mid-1960s. The role of redistribution through taxes and transfers strengthened and inequality decreased considerably until the late 1980s. During the 1990s, however, income inequality significantly increased, which was driven by capital incomes in the top income groups. Moreover, top income taxes started to diminish already in the late 1970s, and a great taxation reform was enacted in the 1990s, which partly explains the growing income inequality. In contrast, income inequality has remained at relatively similar levels in the twenty-first century.

Income inequality and stock market returns

We show that the drop in the equity premium since the 1970s can partially be explained by the shifts in the level and composition of U.S. income inequality. To show it, we use a framework that extends the standard production-based Consumption Capital Asset Pricing Model by allowing for heterogeneity of agents, who differ in their ability to hold financial assets and their labor shares of income. The top income group, capital owners, own the firms and provide labor and the rest of the economy is populated by workers who consume their labor income and income from risk-free government and corporate bonds. Intuitively, an increase in the share of capital in income rises the riskiness of consumption and predicts higher equity premium. A rise in the share of capital owners' non-risky labor income leads to lower excess return. Time-series U.S. equity premium regressions and cross-country excess return comparison significantly and robustly validate predictions of the model. The quantitative experiment of shifting capital and labor income shares of capital owners explains one third of the observed reduction in the U.S. equity premium. The reason is that, during the last five decades, capital owners benefited from higher average growth in their non-risky labor income relative to the capital income.

Inequality as entitlements over labor

Abstract The modern study of economic inequality is based on the distribution of entitlements over goods and services. But social commentators at least since Rousseau have been concerned with a different aspect of economic inequality: that it implies that one person is entitled to command another person for their own personal ends. I call this inequality as entitlements over labor. I propose to measure entitlements over labor by calculating the extent to which top income groups can afford to buy the labor of others for the purpose of their personal consumption. Unlike standard inequality measures, this measure is not welfarist, but instead has its normative basis in relations of domination, hierarchy and social status between people. I estimate entitlements over labor in three high-inequality and two low-inequality countries and argue that inequality as entitlements over labor is socially and politically salient, capturing a side of inequality neglected by standard measures.

Rising top-income persistence in Australia: Evidence from income tax data

We use a new Australian longitudinal income tax dataset, Alife, covering 1991–2017, to examine levels and trends in the persistence in top-income group membership, focussing on the top 1%. We summarize persistence in multiple ways, documenting levels and trends in rates of remaining in top-income groups; re-entry to the top; the income changes associated with top-income transitions; and we also compare top-income persistence rates for annual and ‘permanent’ incomes. Regardless of the perspective taken, top-income persistence increased markedly over the period, with most of the increase occurring in the mid-2000s and early 2010s. In the mid- to late-2010s, Australian top-income persistence rates appear to have been near the top of the range of tax-data estimates for other countries. Using univariate breakdowns and multivariate regression, we show that the rise in top-income persistence in Australia was experienced by many population subgroups. (Stone Center on Socio-Economic Inequality Working Paper)

Macroeconomic Misery by Levels of Income in America

Thirty years of distributional data are used to study the short-term impacts of popular macroeconomic indicators on real household incomes from the poorest to the richest Americans. The appropriate weights on unemployment versus inflation vary across the distribution. The unemployment rate matters at all levels, but especially so for the poorest. Inflation rates matter at middle incomes, though Okun’s famous Misery Index only performs well for the top income groups. GDP growth matters at all levels and proportionately more for the poorest, though only via the unemployment rate. Recessions are poverty-increasing, and skewness-decreasing, but with ambiguous effects on overall inequality. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Markups and income inequality: Causal links, 1975-2011

Using data for 20 countries during 1975–2011, this study provides new evidence on the association between the lack of competition, measured by an increase in markups, and income inequality. We find that an increase in markups is positively associated with rising income inequality. More interestingly, not only do extra profits from higher markups accrue to the top-income group, but also, within the top-income group (top 10%), the higher top-income earners (top 1%) tend to benefit disproportionately more than the lower top-income earners (top 5% or 10%). Finally, we highlight the role of labor market policies; the positive relationship between markups and income inequality is less pronounced in countries with better labor protection such as the statutory protection and power of labor unions, generous unemployment benefits, and mandatory minimum wages.

Income inequality and technological progress: The effect of R&D incentives, integration, and spillovers

AbstractRecent years witnessed an increase in income inequality. Several explanations have been put forward. In the present paper, we consider a series of technologically related events that have been crucial for the increased income inequality, that is, public R&D incentives, increasing horizontal integration and spillover effects. We found that public R&D incentives and the increasing horizontal integration have biased the income distribution towards the top income group. In particular, the high‐skilled workers involved in the R&D process have benefited enormously from this process. Similarly, capital owners have seen an increase in their profits, because of the reduction in product market competition and technological improvements in the production process. We found the effect of knowledge spillovers to be less clear‐cut. We conclude discussing the implications of our results and suggesting possible solutions to the increasing income inequality. We call for the creation of supranational institutions, and for stricter legislation on competition and antitrust policy.

Impact of cigarette tax increase on health and financing outcomes in four Indian states

Background: In India, about one million deaths occur every year due to smoking. Tobacco taxation is the most effective intervention in reducing smoking. In this paper, we examine the impact of a one-time large cigarette price increase, through an increase in excise tax, on health and financing outcomes in four Indian states. Methods: We used extended cost-effectiveness analysis to estimate, across income quintiles, the life-years gained, treatment cost averted, number of men avoiding catastrophic health expenditures and extreme poverty, additional tax revenue collected, and savings to the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) with a cigarette price increase to Indian Rupees (INR) 10 plus 10% ad valorem in four Indian states. Results: With the price increase, about 1.5 million men would quit smoking across the four states, with the bottom income group having 7.4 times as many quitters as the top income group (485,725 vs 65,762). As a result of quitting, about 665,000 deaths would be averted. This would yield about 11.9 million life-years, with the bottom income group gaining 7.3 times more than the top income group. Of the INR 1,729 crore in treatment cost averted, the bottom income group would avert 7.4 times more than the top income group. About 454,000 men would avoid catastrophic health expenditures and 75,000 men would avoid falling into extreme poverty. The treatment cost and impoverishment averted would save about INR 672 crore in AB-PMJAY. The tax increase would in turn, generate an additional tax revenue of about INR 4,385 crore. In contrast to the distribution of health benefits, the extra revenue generated from the top income group would be about 3.1 times that from the bottom income group. Conclusions: Cigarette tax increase can provide significant health and economic gains and is a pro-poor policy for India.

Impact of cigarette tax increase on health and financing outcomes in four Indian states.

Background: In India, about one million deaths occur every year due to smoking. Tobacco taxation is the most effective intervention in reducing smoking. In this paper, we examine the impact of a one-time large cigarette price increase, through an increase in excise tax, on health and financing outcomes in four Indian states. Methods: We used extended cost-effectiveness analysis to estimate, across income quintiles, the life-years gained, treatment cost averted, number of men avoiding catastrophic health expenditures and extreme poverty, additional tax revenue collected, and savings to the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY) with a cigarette price increase to Indian Rupees (INR) 10 plus 10% ad valorem in four Indian states. Results: With the price increase, about 1.5 million men would quit smoking across the four states, with the bottom income group having 7.4 times as many quitters as the top income group (485,725 vs 65,762). As a result of quitting, about 665,000 deaths would be averted. This would yield about 11.9 million life-years, with the bottom income group gaining 7.3 times more than the top income group. Of the INR 1,729 crore in treatment cost averted, the bottom income group would avert 7.4 times more than the top income group. About 454,000 men would avoid catastrophic health expenditures and 75,000 men would avoid falling into extreme poverty. The treatment cost and impoverishment averted would save about INR 672 crore in AB-PMJAY. The tax increase would in turn, generate an additional tax revenue of about INR 4,385 crore. In contrast to the distribution of health benefits, the extra revenue generated from the top income group would be about 3.1 times that from the bottom income group. Conclusions: Cigarette tax increase can provide significant health and economic gains and is a pro-poor policy for India.

Income Inequality and Technological Progress: The Effect of R&D Incentives, Integration and Spillovers

Recent years witnessed an increase in income inequality. Several explanations have been put forward. In the present paper, we consider a series of technologically related events that have been crucial for the increase income inequality, i.e., public R&D incentives, increasing horizontal integration and spillover effects. We found that public R&D incentives and the increasing horizontal integration have biased the income distribution towards the top income group. In particular, the high-skilled workers involved in the R&D process have benefited enormously from this process. Similarly, capital owners have seen an increase in their profits, because of the reduction in product market competition and technological improvements in the production process. We found the effect of knowledge spillovers to be less clear-cut. We conclude discussing the implications of our results and suggesting possible solutions to the increasing income inequality. We call for the creation of supranational institutions, and for stricter legislation on competition and antitrust policy.