Potential Determinants of Top Income Inequality

Abstract

Using the data series produced from the collective research project on the dynamics of income distribution (Atkinson and Piketty 2007, 2010) we have studied the effect of different economic factors on top income inequality in the Anglo-Saxon countries (Australia, Canada, New Zealand, UK, USA). These effects turn out to be different for individual countries. The bubbles of …nancial market explain the surge in top income inequality in the United States. Our results reveal that the bubbles of …nancial market increase top income inequality, although the economic growth rate fails to increase top income shares in the United States. The effect of economic growth rate on top income inequality is also time varying in the Anglo Saxon region. The positive economic growth rate of post 1980 turns out to be pro rich but the economic growth rate of pre 1980 does not promote the top income inequality. The top marginal tax rate and government expenditure may have an equalizing effect by reducing income of the rich, though the impact of …nancial development on top income inequality is inconclusive.