Trends in top income shares in Finland 1966-2007

Risto Sullström, Marja Riihelä and Matti Tuomala

No 157, Research Reports from VATT Institute for Economic Research

Abstract: This paper provides new evidence about the evolution of top incomes in Finland over the period 1966–2007. Using micro data we construct estimates of shares of top income groups. The paper shows how the proportion of income earned by the very richest one per cent has changed over time. It shows a U-shaped pattern over this period. The total share of the highest earners fell consistently between the mid 1960s and the beginning of the 1990s but then began to rise. The results bring out clearly how the major equalization from the mid 1960s to the mid 1990s has been reversed, taking the shares of top income groups back to levels of inequality or even higher found 40 years ago. The main factor that has driven up the top one per cent income share in Finland after the mid 1990s is in an unprecedented increase in the fraction of capital income which is in 2007 62 per cent of incomes in the top one per cent group. In 1990 this fraction was 14 per cent. Therefore the composition of high incomes at the end of period considered is very different from those earlier years of this period. We argue in this paper that the 1993 tax reform has contributed to this trend. Our results suggest that tax reform has declined tax progressivity and increased top income shares in Finland.

Keywords: Top income shares; inequality; taxation; income mobility; ylimmät tulo-osuudet; tuloerot; verotus; tuloliikkuvuus; Income distribution; Tulonjako; Taxation; Verotus; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot (search for similar items in EconPapers)
Date: 2010
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