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The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA

Anna Fräßdorf (), Markus Grabka () and Johannes Schwarze
Additional contact information
Anna Fräßdorf: University of Bamberg
Johannes Schwarze: University of Bamberg

No 3492, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyses the contribution of capital income to income inequality in a cross-national comparison. Using micro-data from the Cross-National Equivalent File (CNEF) for three prominent panel studies, namely the BHPS for Great Britain, the SOEP for West Germany, and the PSID for the USA, a factor decomposition method described by Shorrocks (1982) is applied. The factor decomposition of disposable income into single income components shows that capital income is exceedingly volatile and its share in disposable income has risen in recent years. Moreover, capital income makes a disproportionately high contribution to overall inequality in relation to its share in disposable income. This applies to Germany and the USA in particular. Thus capital income accounts for a large part of disparity in all three countries.

Keywords: inequality; CNEF; capital income; factor decomposition (search for similar items in EconPapers)
JEL-codes: D33 F00 I31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-05
New Economics Papers: this item is included in nep-eec and nep-hap
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Published - published in: Journal of Economic Inequality, 2011, 9 (1), 35 - 56

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Working Paper: The Impact of Household Capital Income on Income Inequality: A Factor Decomposition Analysis for Great Britain, Germany and the USA (2008) Downloads
Working Paper: The impact of household capital income on income inequality: A factor decomposition analysis for Great Britain, Germany and the USA (2008) Downloads
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