Macro Perspectives on Income Inequality

Matthieu Gomez

Journal of Economic Perspectives, 2025, vol. 39, issue 2, 127-48

Abstract: Inequality has become a defining challenge for modern economies and a central focus of economic research over the past two decades. I begin by revisiting the foundations of income measurement, showing that standard definitions—taxable income, factor income, and Haig-Simons income—suffer from important conceptual limitations. I contrast these income measures with the ideal notion of income from a welfare perspective—Hicksian income—which captures an individual's ability to consume or save for future consumption. I then examine the drivers of rising top income inequality, with particular attention to the surge in entrepreneurial incomes. I highlight three key forces behind this phenomenon: higher returns on capital (technological factors), lower external financing costs (financial factors), and a lighter tax burden on business owners (fiscal factors).

JEL-codes: D31 E21 G32 G51 H25 I31 L26 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/jep.20241435

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