Asset bubbles in explaining top income shares

Saikat Sarkar () and Matti Tuomala ()
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Saikat Sarkar: Mount Allison University
Matti Tuomala: Tampere University

The Journal of Economic Inequality, 2021, vol. 19, issue 4, No 5, 707-726

Abstract: Abstract This paper considers the role of asset price bubbles (crashes) as an important determinant in seeking a further explanation for top income shares. The asset price bubbles caused at least in part by monetary policies, along with other determinants such as top tax rates and innovativeness are the important drivers to explain the surge in top income shares. The empirical results show that correlation between asset bubbles and top inequality is positive and significant. The regression coefficient of stock and housing market bubbles have a positive effect on top income shares, while the stock and housing market crashes fail to reduce the surge in top income shares. In sum, as the asset markets grow, the share of income going to those at the very top increases and the accumulation of income accelerates if the duration of bubbles expands. Concentration of income at the very top is much more important when capital gains are counted as income.

Keywords: Top income shares; Bubbles and crashes; Innovations; Top tax rates (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10888-021-09481-y

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