Determinants of Income Composition Inequality

Petrova, Bilyana; Ranaldi, Marco

doi:10.31235/osf.io/vyrz7

Cited by 3 publications

(5 citation statements)

References 26 publications

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“…23 Third, a better understanding of the determinants of compositional inequality is necessary. Petrova and Ranaldi (2024) recently showed that left-wing parties tend to reduce, rather than increase, compositional inequality across the distribution within the context of Europe. However, evidence for the rest of the world is scarce, where different dynamics are certainly at play.…”

Section: Discussionmentioning

confidence: 99%

Compositional Inequality: Measurement, Stylized Facts, and Normative Aspects

Ranaldi

2024

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This paper explores the concept, measurement, principal stylized facts, and normative implications of compositional inequality. Compositional inequality refers to how the shares of capital and labor income vary along the income distribution. This analysis is valuable for several reasons. From a macroeconomic perspective, it elucidates the link between functional and personal distributions of income, which is crucial for addressing the drivers of income inequality in a context of AI-driven, technology-augmenting capital accumulation. From a comparative economic perspective, it locates economic systems on the continuum between two extremes: classical capitalism, where the rich earn predominantly from capital and the poor from labor, and new capitalism, where the composition of capital and labor is uniform across the distribution. We refer to the entire range of systems along this continuum as the distributional varieties of capitalism. Recent empirical studies indicate that, in most countries, we are far from classical capitalism, though with notable exceptions, such as Latin American countries. This underscores the need to evaluate the benefits of compositional equality. The paper concludes that compositional equality is desirable for at least two reasons: it promotes fairness and supports an inclusive, profit-driven regime of accumulation and growth. (Stone Center on Socio-Economic Inequality Working Paper)

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Section: Discussionmentioning

confidence: 99%

Compositional Inequality: Measurement, Stylized Facts, and Normative Aspects

Ranaldi

2024

Preprint

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“…The study finds that DITRs, by lowering the marginal tax rate on capital income, contributed to capital income concentration and higher concentration at the top, which led to an increase in income composition inequality. Petrova and Ranaldi (2021) [3] argue that taxation and redistribution policies can have significant effects on income composition inequality. Specifically, they argue that tax reforms favoring capital income may shift capital income to the top of the income distribution, resulting in a more unequal distribution of income composition.…”

Section: Income Composition Inequality and Fiscal Redistributionmentioning

confidence: 99%

“…Drawing on Petrova and Ranaldi (2021) [3] and existing literature, the preceding section of this paper divides residents' income into two categories: capital income and labor income. The transfer payments are included in labor income while analyzing the redistributive effects.…”

Section: The Fiscal Redistribution Effects On Income Composition Ineq...mentioning

confidence: 99%

“…The analysis of income composition inequality reflects the changing balance of power between capital income share and labor income share in the primary distribution result, which is the combination of income element distribution and individual income distribution result. Inequality research from a multiple perspective, such as income composition, can help clarify redistributive preferences and identify specific policy tools to address the growing gap between rich and poor, the decline in the political weight of labor, and the rise in inequality [3].…”

Section: Introductionmentioning

confidence: 99%

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Income composition inequality of Chinese residents and fiscal redistribution effect: An empirical analysis on individual income tax and transfer system

Tu,

Yan,

Zheng

2024

PLoS ONE

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Based on the data of China Family Panel Studies (CFPS), this paper decomposed Chinese residents’ income into labor income and capital income by income source, and measured the income inequality and income composition inequality of Chinese residents during 2010–2018. We take the Gini coefficient as a measure of inequality and, by decomposing it by income source, analyze the absolute and relative marginal effects of capital income and labor income on the overall income inequality. On this basis, this paper discusses the redistributive effect of financial instruments such as personal income tax and transfer payment on income inequality and income composition inequality. The results show that capital income is not only the main driving factor for the increase of overall income inequality, but also its influence on inequality is gradually increasing. The results of the redistribution effect of fiscal instruments show that although individual income tax and transfer payment both help to reduce the overall income inequality, only individual income tax can reduce the inequality of income composition, while transfer payment will exacerbate it. In the background of the rising share of capital income, it may widen the income distribution gap in the long run. Hence, future fiscal redistribution efforts should consider the income composition inequality. This includes further promotion of individual income tax reforms, optimization of the tax rate structure, enhancement of relevant tax laws governing capital income like property income, and continuous improvement in the redistributive impact of fiscal instruments.

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“…As for behavioral heterogeneity, seeDynan et al (2004),Saez and Zucman (2016),Jappelli and Pistaferri (2014),Bunn et al (2018) among others, whilst for endowment heterogeneity, seeRanaldi and Milanovic (2022),Iacono and Ranaldi (2022),Iacono and Palagi (2022b),Petrova and Ranaldi (2021),Berman and Milanovic (2020).…”

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confidence: 99%

Heterogeneity in Macroeconomics: The Compositional Inequality Perspective

Ranaldi¹,

Palagi²

2022

Preprint

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This work presents a framework to jointly study individuals’ heterogeneity in terms of their capital and labor endowments (endowment heterogeneity) and of their saving and consumption behaviors (behavioral heterogeneity), from an empirical perspective. By adopting a newly developed synthetic measure of compositional inequality, this work classifies more than 20 economies across over two decades on the basis of their heterogeneity characteristics. Modern economies are far from being characterized by agents with same propensities to save and consume and same endowments (Representative Agent systems), or by the existence of rich capital-abundant savers and poor hand-to-mouth consumers (Kaldorian systems). Our framework and results are discussed in light of the heterogeneity assumptions underlying several types of macroeconomic models with heterogeneous agents (Kaldorian, TANK & HANK, OLG, and ABM models). A negative relationship between behavioral heterogeneity and the economy’s saving rate is also documented. (Stone Center on Socio-Economic Inequality Working Paper)

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Determinants of Income Composition Inequality

Cited by 3 publications

References 26 publications

Compositional Inequality: Measurement, Stylized Facts, and Normative Aspects

Compositional Inequality: Measurement, Stylized Facts, and Normative Aspects

Income composition inequality of Chinese residents and fiscal redistribution effect: An empirical analysis on individual income tax and transfer system

Heterogeneity in Macroeconomics: The Compositional Inequality Perspective

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