Starting from January 1, 2008, Journal of Economic Inequality has become the official journal of ECINEQ.
Original Paper, Pages 261-289
Tax progressivity and top incomes evidence from tax reforms
Enrico Rubolino, Daniel Waldenström
We study the link between tax progressivity and top income shares. Using variation from Western tax reforms in the 1980s and 1990s and synthetic control method estimation, we find that reductions in tax progressivity had large and lasting positive impacts on top income shares. The effects are largest within the top percentile and almost zero in the lower half of the top decile, and all results are robust to different model specifications, placebo tests in time and space, and controlling for other contemporaneous reforms. Searching for mechanisms, we find that the effects seem to operate mainly through reductions in top marginal tax rates and that the share of capital income in top incomes increased after the reforms, indicating that tax avoidance behavior could explain some of the observed effects.
Original Paper, Pages 291-317
Market competition and parental background wage premium: the role of human and relational capital
Mauruzio Franzini, Fabrizio Patriarca, Michele Raitano
The literature on intergenerational inequality has not inquired so far the role that market competition can play in the intergenerational transmission process. In this article we assess this role from both an empirical and a theoretical perspective. From the empirical side, using a panel dataset on Italian workers, we find that the parental background wage premium significantly decreases when sector competition increases. This result is challenging and might signal that part of the intergenerational transmission of inequalities is related to non-productive abilities transmitted by parents – that we call relational capital – rewarded thanks to rents arising in non-competitive markets. However, parental background might hide both relational capital and unobservable abilities and we cannot exclude that some workers’ unobservable abilities are more rewarded in less competitive industries, even if further analyses run to deal with this issue lend support to the idea that relational capital plays a not negligible role. From the theoretical side, we propose a model – whose predictions are consistent with our findings – that sheds light on the crucial role played by the intergenerationally transmitted relational capital in rent-seeking activities by firms when markets are non-competitive.
Original Paper, Pages 319-338
Aggregate wealth and its distribution as determinants of financial crises
This paper investigates the relationship between wealth inequality and financial crises. While substantiation of a role for income inequality remains ambiguous in the literature, evidence is presented suggesting a positive relationship between the interaction of wealth inequality with aggregate wealth on systemic financial crises. The evidence is based on panel data for nine countries, some of which expand into the last century, and a linear probability model estimated with country and year fixed effects. The relationship is consistent when accounting for overall financial sector size, credit growth, the money supply, current account, asset bubbles, and robust to estimation method. No significant role is found for income inequality. Predicted probabilities of financial crisis closely track the incidence of financial crises over the last century, remarkably so when compared against a leading benchmark model. It is argued that the empirical relationship between wealth inequality, aggregate wealth and financial crises reveals an important role for the distribution of accumulated assets in the macro-financial stability of rich countries. The distribution of stocks may capture structural vulnerabilities that the distribution of flows cannot expose, and hence more unequal countries in wealth face greater financial instability. An economic network hypothesis is proposed for interpreting the empirical results.
Original Paper, Pages 339-364
On the robustness of multidimensional counting poverty orderings
Francisco Azpitarte, Jose Gallegos, Gaston Yalonetzky
Counting poverty measures have gained prominence in the analysis of multidimensional poverty in recent decades. Poverty orderings based on these measures typically depend on methodological choices regarding individual poverty functions, poverty cut-offs, and dimensional weights whose impact on poverty rankings is often not well understood. In this paper we propose new dominance conditions that allow the analyst to evaluate the robustness of poverty comparisons to those choices. These conditions provide an approach to evaluating the sensitivity of poverty orderings superior to the common approach of considering a restricted and arbitrary set of indices, cut-offs, and weights. The new criteria apply to a broad class of counting poverty measures widely used in empirical analysis of poverty in developed and developing countries including the multidimensional headcount and the adjusted headcount ratios. We illustrate these methods with an application to time-trends in poverty in Australia and cross-regional poverty in Peru. Our results highlight the potentially large sensitivity of poverty orderings based on counting measures and the importance of evaluating the robustness of results when performing poverty comparisons across time and regions.
Original Paper, Pages 365-389
Conspicuous consumption and peer-group inequality: the role of preferences
Jessica Harriger-Lin, Neha Khanna, Andreas Pape
We develop a model that predicts changes in household consumption following a mean preserving increase in consumption inequality. The model allows for multiple peer-groups (a high-consumption (HC) group and a low-consumption (LC) group) as well different degrees of conspicuousness between the goods. We find that following a mean preserving increase in consumption inequality, a household with a constant level of income will increase its consumption of the more conspicuous good when it has preferences consistent with (i) ‘keeping up with the Joneses’ and a relatively stronger HC effect or (ii) ‘running away from the Joneses’ and a relatively stronger LC effect. Using U.S. consumer expenditure data from 1986 to 2002, we find tremendous heterogeneity in household preferences. While U.S. households consistently demonstrate ‘keeping up with the Joneses’, the relative strengths of HC and LC effects vary across racial sub-groups as well as across goods. Likewise, while expenditure on clothing, jewelry, personal care, etc., is generally more conspicuous than expenditure on healthcare, home furnishings, vehicle maintenance, etc., among the LC group, it is less conspicuous among the HC group with some heterogeneity by race. We conclude that heterogeneity in preferences is a likely explanation for the differences in the observed relationship between conspicuous spending and peer group inequality.
Original Paper, Pages 391-419
Quantifying the contribution of a subpopulation to inequality: an application to Mozambique
In this paper, I quantify the contribution of a subpopulation to inequality. This is defined as the sum of the contributions of its members, with these contributions computed as the impact on inequality of a small increase in the population mass at each point of the distribution (using the Recentered Influence Function). The decomposition is shown to verify various attractive properties. I also discuss alternative approaches used in the literature of factor inequality decompositions. I show that the RIF and the marginal and Shapley factor contributions are approximately equal in the case of the Mean Log Deviation, the index with the best additive decomposability properties, when the same normalization is used. In an empirical illustration, I use the approach to identify how the richest, highly educated, and urban population has disproportionally contributed to high and increasing inequality in Mozambique in recent years.
Original Paper, Pages 391-419
Extending the approaches to polarization ordering of ordinal variables
Sandip Sarkar, Sattwik Santra
The partial dominance orderings introduced in Allison and Foster (J.Health Econom. 23(3), 505–524, 2004) and Chakravarty and Maharaj (Int. J. Econom. Theory 11(2), 231–246, 2015) are applicable to ordinal variables with identical median categories. In the present paper, we extend these approaches to distributions having different medians. We introduce the notions of “Slide” and “Addition of Unpopulated Categories at Extremities”(AUCE) and construct new distributions with matching median categories from distributions having non-identical medians. In general, these two notions are sufficient to generate distributions with matching median categories and in some cases, Slide alone suffices. If both Slide and AUCE are required to generate the new distributions, then these distributions may not be ranked by the dominance ordering of Allison and Foster but may be ranked by that of Chakravarty and Maharaj. On the other hand, if Slide alone is used, then the generated distributions may be ranked by both criteria. We characterize the class of polarization measures that ranks the original distributions in accordance with the dominance orderings of the constructed distributions. We observe that a number of well-known polarization measures belongs to this class. Empirical applicability of the theory is illustrated using data on male and female educational attainments in India.
Book Review, Pages 441-444
Book Review of “The triumph of injustice: how the rich dodge taxes and how to make them pay”
Edward N. Wolff
Book Review, Pages 445-447
Book Review of “Love, money and parenting. How economics explains the way we raise our kids”