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ENTREPRENEURSHIP AND INCOME DISTRIBUTION DYNAMICS: WHY IS THE INCOME SHARE OF TOP INCOME EARNERS ACYCLICAL OVER THE BUSINESS CYCLE?

Noh-Sun Kwark () and Eunseong Ma ()

International Economic Review, 2021, vol. 62, issue 1, 321-356

Abstract: In the United States, the income share of the top 5% income group is acyclical over the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, particularly focusing on the top 5% income earners' share, using a heterogeneous agent model featuring a choice to become an entrepreneur. The model economy successfully reproduces the acyclical behavior of the income share of the top 5%. During expansions, relatively more people become entrepreneurs at the top, which offsets the decline in the income share of the high‐income earners from workers' side.

Date: 2021
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https://doi.org/10.1111/iere.12489

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Working Paper: Entrepreneurship and Income Distribution Dynamics: Why Is the Income Share of Top Income Earners Acyclical over the Business Cycle? (2020) Downloads
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