What About the Rest of the Pie? A Dynamic Compositional Approach to Modeling Inequality

Abstract

Objective. To demonstrate how a novel method enhances our understanding of determinants of inequality. Methods. We take advantage of recent advances in dynamic models of compositional dependent variables to simultaneously study tradeoffs across multiple slices of the composition of income in the United States between 1947 and 2014. Results. Our analyses demonstrate the utility of dynamic compositional models of income shares. Factors that increase the income share of the top income group often also increase the income share of the second income group and decrease the shares of lower groups at different rates. Polarization and marginal tax rates have large effects on relative income shares, while returns to labor, returns to capital, and partisan control of Congress have smaller, but statistically significant effects. Conclusion. Our suggested approach allows researchers to effectively explore interesting variation across multiple income groups in response to changes in determinants of inequality.

What's your problem? How issue ownership and partisan discourse influence personal concerns

“…Since our outcome variables are log‐ratios, recovering substantively meaningful effects requires an untransformation from log‐ratios back to the percentage of people that identify a particular policy area as salient. We use a multinomial logit transformation and recover estimates of uncertainty using a parametric bootstrap (e.g., Kagalwala, Philips, and Whitten 2021; Lipsmeyer, Philips, and Whitten 2017; Philips, Rutherford, and Whitten 2016). Using figures, we demonstrate the short‐term and long‐term effects of how a change in the presence of a far‐right party affects the distribution of people that identify each policy area as salient.…”

Economic complexity and income inequality: New evidence of a nonlinear effect

“…Much attention has been devoted to explaining changes in income inequality from different perspectives and with different drivers (Furceri and Ostry 2019; Kagalwala et al. 2021; Sebri and Dachraoui 2021). Importantly, income inequality has deepened as a result of COVID‐19, as the poorest and most vulnerable communities have been hit the hardest (UN 2021).…”

“…Inequality in income distribution between people (income inequality) is recognized as one of the most important socioeconomic issues in modern society (Campbell Jr, 2021;DiPasquale et al 2021;Ravallion 2014). Much attention has been devoted to explaining changes in income inequality from different perspectives and with different drivers (Furceri and Ostry 2019;Kagalwala et al 2021;Sebri and Dachraoui 2021). Importantly, income inequality has deepened as a result of COVID-19, as the poorest and most vulnerable communities have been hit the hardest (UN 2021).…”