Power, Institutions and Top Income Inequality in Portugal

João Alcobia and Frederico Silva Leal

No 2026/0415, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Income inequality in Portugal has risen persistently over the past four decades, placing the country among the most unequal in Western Europe. This paper analyses the determinants of top income concentration in Portugal between 1980 and 2023, using an Autoregressive Distributed Lag (ARDL) framework and six distinct post-tax inequality measures, drawing on Power Resource Theory. The decline in trade union density and labour market flexibilisation emerge as the main drivers of rising top income concentration. Quantifying these effects, the decline in union density is the single most important factor, contributing to an average annual increase of 0.3 percentage points in the Top 1% income share. Higher top marginal tax rates and government consumption mitigate inequality, while financialisation and trade openness exert compressive effects. These findings indicate that the balance of power between labour and capital determines income shares, with direct policy implications for reversing decades of institutional erosion.

Keywords: Income inequality; Top income; Labour market institutions; Portugal; Power Resource Theory. (search for similar items in EconPapers)
JEL-codes: E24 H23 J50 (search for similar items in EconPapers)
Date: 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp04152026

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