What is it about?
The purpose of this paper is to investigate the adjustment of government redistributive policies in Scandinavian and Mediterranean countries following changes in income inequality over the period 1980–2021. We first modelled the time-varying dynamics between income inequality and redistribution and then used a non-linear framework to test for the existence of asymmetries effects in their long-run relationship. Two complementary measures of inequality are used: (i) the ratio of the share of total income accruing to top decile income holders divided by that accumulated by the bottom 50% and (ii) the share of total income accruing to top percentile income holders. Redistribution is computed as the difference between the two inequality indicators before and after taxes and transfers. The authors found that the sign of the relationship between income inequality and redistribution is mostly positive and time-varying. Overall, the authors also found evidence that the impact of increases in inequality on redistributive measures is higher than that of decreases. Finally, the authors obtained a significant long-run relationship between both variables in all countries except Denmark and Spain. These results hold for both Scandinavian and Mediterranean countries. Originality/value To the best of the authors’ knowledge, this is the first paper to account for the potential existence of non-linearities and to examine the asymmetries in the adjustment of redistributive policies to increases in income inequality using alternative income inequality metrics.
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Why is it important?
It is found that the sign of the relationship between income inequality and redistribution is mostly positive and time-varying. Overall, there is evidence that the impact of increases in inequality on redistributive measures is higher than that of decreases. Finally, a significant long-run relationship between both variables is obtained in all countries except Denmark and Spain. These results hold for both Scandinavian and Mediterranean countries. To the best of the authors’ knowledge, this is the first paper to account for the potential existence of non-linearities and to examine the asymmetries in the adjustment of redistributive policies to increases in income inequality using alternative income inequality metrics.
Perspectives
The World Inequality Database (WID) is the most extensive dataset available on the historical evolution of income inequality. Thanks to the information that the WID project has been generating in recent years, which is freely available to researchers (https://wid.world/), the database offers numerous advantages over previously available information in order to delve deeper into the analysis of inequality and redistribution. On the one hand, it not only provides estimates of the level of inequality for long periods of time but also does so before and after taxes and transfers. This contribution is what makes it possible to approximate governments' efforts in mitigating inequality. In addition, the historical series are available for a wide range of countries and on an annual basis, making possible both international comparisons and the application of econometric techniques characteristic of time series analysis.
Oscar Claveria
AQR-IREA, Univeristy of Barcelona
Read the Original
This page is a summary of: Inequality and redistribution: evidence from Scandinavian and Mediterranean countries, Applied Economic Analysis, November 2023, Emerald,
DOI: 10.1108/aea-06-2023-0201.
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