Income Distribution and Redistribution: A Microdata Analysis for Seven Countries

Abstract

This paper reports the detailed results of a comparison of the distribution and redistribution of income in seven countries using the Luxembourg Income Study (LIS) database. Use of LIS facilitates comparisons of inequality in respect to similarly‐defined variables, permits methodological alternatives to be used, and allows the countries to be compared on aspects of income ranking and policy equity in ways not otherwise possible. The results indicate a pattern of inequality in which Sweden is the most equal, followed by Norway, the U.K. and Canada, while among the less equal countries Israel is generally more equal than Germany‐or the USA., whose relative inequality depends on the measure chosen. Use of the LIS database also allows a more detailed explanation of these results, noting, for example, the role of cash benefits in increasing equality in Sweden and the U.K., and in aiding the bottom quintile in Germany; and the important part played by self‐employment income in contributing to the high top quintile shares in Germany and Israel, and in rendering the Norwegian distribution less equal than that of its Scandinavian neighbour. The wealth of the database, however, means that methodological issues need to be treated both more explicitly and more carefully than is possible with more restrictive data. To interpret the data also requires a considerable degree of knowledge about the institutional features of tax and social provisions in each country, so that an income microdatabase could usefully be completed by one focused on the details of such provisions.

The impact of household capital income on income inequality—a factor decomposition analysis for the UK, Germany and the USA

“…Furthermore, they examine the shares of the single income components in total income within the first to the fifth quintiles, and find no significant difference between quintiles for property income in Germany or the UK, in contrast to the USA. Indeed the highest values appear in the highest quintiles of all three countries (see O'Higgins et al 1990). Atkinson (1997) explains the four percentage point increase in the contribution of capital income to income inequality between 1973 and 1993 (from 7% to 11%) primarily on the basis of increasing private pension benefits, whose share he calculates to have doubled from 3% to 6%.…”

“…Gottschalk and Smeeding (1997) explain the higher income shares at the top of the income distribution by increased capital income among other factors. O'Higgins et al (1990) find that the average shares of property income in gross income are 5.8% in the USA, 2.7% in the UK, and 1.1% in West Germany. Furthermore, they examine the shares of the single income components in total income within the first to the fifth quintiles, and find no significant difference between quintiles for property income in Germany or the UK, in contrast to the USA.…”

“…Up to now, some evidence has been produced to show how other income components influence the personal distribution of income (see for instance Jäntti 1997, Jenkins 2000, Lerman and Yitzhaki 1985, O'Higgins et al 1990, Schwarze and Frick 2000, Shorrocks 1983, Wolff and Zacharias 2009. Capital income is seen as playing an important role in this process.…”

The Impact of Household Capital Income on Income Inequality - A Factor Decomposition Analysis for Great Britain, Germany and the USA

“…Gottschalk and Smeeding (1997) explain the higher income shares at the top of the income distribution by increased capital income among other factors. O'Higgins et al (1990) find that the average shares of property income in gross income are 5.8% in the USA, 2.7% in Great Britain, and 1.1% in West Germany. Furthermore, they examine the shares of the single income components in total income within the first to the fifth quintiles, and find no significant difference between quintiles for property income in Germany or Great Britain, in contrast to the USA.…”

“…Up to now, however, little evidence has been produced to show how other income components influence the personal distribution of income (see for instance Jäntti 1997, Jenkins 2000, Lerman and Yitzhaki 1985, O'Higgins et al 1990, Schwarze and Frick 2000, Shorrocks 1983). Capital income is seen as playing an important role in this process.…”