Functional Income Distribution in Portugal: The Role of Financialisation and Other Related Determinants

Ricardo Barradas () and Sérgio Lagoa ()
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Ricardo Barradas: Instituto Universitário de Lisboa (ISCTE-IUL), Dinâmia’CET-IUL, Lisboa, Portugal
Sérgio Lagoa: Department of Political Economy, Instituto Universitário de Lisboa (ISCTE-IUL), Dinâmia’CET-IUL, Lisboa, Portugal

Society and Economy, 2017, vol. 39, issue 2, 183-212

Abstract: This paper provides an empirical analysis of the relationship between the labour income share and financialisation, as well as other related variables in Portugal from 1978 to 2012. We estimate an equation for the labour share that includes standard variables (technological progress, globalisation, education and business cycle) and variables to capture the effect of financialisation. We formulate the hypothesis that the financialisation process may lead to a rise in the inequality of functional income distribution through three channels: the change in the sectoral composition of the economy (due to both the increase in the weight of financial activity and the decrease in government activity), the diffusion of shareholder value governance practices and the weakening of trade unions. Our results show that the financialisation process has an indirect long-term effect on the labour share through its impact on government activity and trade union density. The paper also finds evidence supporting the traditional explanations for functional income distribution, namely globalisation, education and business cycle.

Keywords: financialisation; inequality; Portuguese functional income distribution; cointegration; ARDL models (search for similar items in EconPapers)
JEL-codes: C22 D33 E44 (search for similar items in EconPapers)
Date: 2017
Note: The authors are grateful for the helpful comments and suggestions of two anonymous referees, Bahram Pesaran, Eckhard Hein, Helena Lopes, M. Hashem Pesaran, the participants in the third FESSUD Annual Conference (Warsaw, October 2014), the participants in INFER Workshop on Heterodox Economics (Faculty of Economics – University of Coimbra, April 2015) and the participants in Dinâmia’CET-IUL Workshop on Dinâmicas Socioeconómicas e Territoriais Contemporâneas (Instituto Universitário de Lisboa – ISCTE-IUL, June 2015). The usual disclaimer applies.
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