Non‐Linearity and Cross‐Country Dependence of Income Inequality

23 Pages Posted: 6 Jun 2020

See all articles by Leena Kalliovirta

Leena Kalliovirta

University of Helsinki - Department of Statistics

Tuomas Malinen

HECER, University of Helsinki

Date Written: March 2020

Abstract

We use top income data and the newly developed regime‐switching Gaussian mixture vector autoregressive model to explain the dynamics of income inequality in developed economies within the past 100 years. Our results indicate that the process of income inequality consists of two equilibria identifiable by high inequality and high income fluctuations, and low inequality and low income fluctuations. Our results also imply that income inequality in the United States is the driver of income inequality in other developed economies. High wages and capital gains are found to be the likely channels for the U.S. influence.

Keywords: top 1 percent income share, GMAR, multiple equilibria, developed economies

Suggested Citation

Kalliovirta, Leena and Malinen, Tuomas, Non‐Linearity and Cross‐Country Dependence of Income Inequality (March 2020). Review of Income and Wealth, Vol. 66, Issue 1, pp. 227-249, 2020, Available at SSRN: https://ssrn.com/abstract=3619336 or http://dx.doi.org/10.1111/roiw.12377

Leena Kalliovirta (Contact Author)

University of Helsinki - Department of Statistics ( email )

Finland

Tuomas Malinen

HECER, University of Helsinki ( email )

Helsinki, 00014
Finland

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