For a Fistful of Krones? The Impact of Business Income on Income Inequality

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For a Fistful of Krones? The Impact of Business Income on Income Inequality

Research Seminar

Tuesday 26 November 2019, 16:00 — 17:00

Research Seminar

Presented by Marco Francesconi (University of Essex)

Venue: Office for National Statistics, 1 Drummond Gate, London, SW1V 2QQ

In this study, we investigate the role played by business income in the evolution of income inequality. We perform our analysis combining administrative tax records with highly detailed ownership data and firm level balance sheets to allocate corporate profits to personal owners across the entire Norwegian economy between 2001 and 2016. We find that a measure of business income based on the notion of retained earnings is less sensitive to tax incentives than official measures and allows us to account for business income as it accrues rather than when it is realized. With this new measure, we find that inequality estimates go up dramatically. For instance, the share of market income accruing to the top 1% doubles, going from about 10% using official measures to about 20% using our measure. Similarly, the Gini coefficient increases dramatically from an average of 0.25 with the official measure to an average of 0.33 using our new measure over the sample period, a whopping increase of more than 30%.

Marco Francesconi is a Professor of Economics at the University of Essex. He has a PhD in Economics from New York University and his main area of research is labour economics, with special interest in family economics, intergenerational links, income inequality, and labour market dynamics. His recent work has appeared in the Journal of Political Economy, Economic Journal, Journal of Labor Economics, European Economic Review, Journal of Human Resources, International Economic Review, and Journal of Applied Econometrics. Before joining the University of Essex he was with the Institute for Social and Economic Research (ISER) for 9 years, where he remains a Research Fellow.  He is also a Research Fellow at the Centre for Economic Policy Research (London), the Institute for the Study of Labor (Bonn), CES-ifo (Munich), and the Centre for Household Income Labour and Demographic economics (Torino).

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