Inequality: Measurement, Evolution, Mechanisms, and Policies

About the project

The project "Inequality" is defined by several subprojects that jointly is supposed to provide a more complementary description of economic inequality in the society than what is attained from conventional studies based on tax reported data for disposable income.

Research activity

The Project is implemented according to the plan set out in the application. During this year, the project continued the research activity and achieved new empirical insights on inequality in Norway, as documented by the following article:

Estimating long-run income inequality from mixed tabular data: Empirical evidence from Norway, 1875-2017

• The main objective of this paper is to propose a non-parametric approach for estimating inequality in the overall distribution of income on the basis of different historical tabular data sources that are available in most countries, some in a highly aggregated form.

• The proposed approach is applied to Norway, for which rich historical data exist. We find evidence of very high income inequality from the late nineteenth century until the eve of World War II, followed by a rapid equalization until the 1950s. Income inequality remained low during the post-war period but has increased steadily since the 1980s.

• Estimates of a measure of affluence demonstrate that overall inequality is largely governed by changes in the top half of the distribution and in in the ratio of the mean incomes of the lower halve to the upper halve of the population, which means that the assessed long-run evolution of income inequality is less sensitive to the assumptions made about the distribution of the income attributable to non-taxpayers. However, the evolution of the shares of the top 1 and top 10 per cent do not capture the evolution of income inequality in Norway, although overall inequality and top income shares have moved closely together in recent decades.

Objectives

The aim of this project is to advance our understanding of economic inequality.

Current analyses face major limitations. First, current measures of inequality are unable to account for fundamental aspects of inequality, such as holding individuals accountable for their choices and compensating them for their different needs. Second, debated empirical projects have mostly focused on the time trend of top-income inequality, paying less attention to the entire income distribution and cross-country variation. Third, the behavioral mechanisms behind the persistence and evolution of economic inequality are only vaguely understood. These limitations hinder economists' and politicians' capacity to produce useful policy recommendations.

Our project addresses these limitations. First, it contributes to welfare economics and moral philosophy by developing fairness-sensitive measures of economic inequality, in light of the most recent advances in distributive justice. Second, it employs detailed databases (Norwegian register data, EU-SILC, and US Census) to reevaluate the state and trends of income inequality in Norway, the EU countries, and the US. Third, it investigates specific policy recommendations, such as the introduction of a universal basic income. Importantly, for the correct evaluation of redistributive policies, the project will also expend considerable effort in analyzing the causal mechanisms behind the persistence and evolution of income inequality.

As part of the project, we will strive to communicate and disseminate our results both inside and outside of the academic community, hoping to raise a larger interest and to feed politicians and public debates with transparent information about economic inequality.