Non‐Linearity and Cross‐Country Dependence of Income Inequality
23 Pages Posted: 6 Jun 2020
Date Written: March 2020
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: Suggested Citation