Abstract
This paper considers the role of asset price bubbles (crashes) as an important determinant in seeking a further explanation for top income shares. The asset price bubbles caused at least in part by monetary policies, along with other determinants such as top tax rates and innovativeness are the important drivers to explain the surge in top income shares. The empirical results show that correlation between asset bubbles and top inequality is positive and significant. The regression coefficient of stock and housing market bubbles have a positive effect on top income shares, while the stock and housing market crashes fail to reduce the surge in top income shares. In sum, as the asset markets grow, the share of income going to those at the very top increases and the accumulation of income accelerates if the duration of bubbles expands. Concentration of income at the very top is much more important when capital gains are counted as income.
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Acknowledgements
We would like to thank the editor and two anonymous referees for their extremely helpful comments and suggestions. We have also benefited from comments from Daniel Waldenström, Andrew Leigh, Jukka Pirttilä, Kari Heimonen, Hannu Tanninen, Nabil Tahani, Craig Brett, José F. Ursúa and Wojciech Kopczuk. Financial support from the Marjorie Young Bell Faculty Fund and the Academy of Finland Strategic Research Council project Work, Inequality and Public Policy (number 293120) are gratefully acknowledged.
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Appendix A
Appendix A
1.1 A.1 Basic explanatory variables
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Sarkar, S., Tuomala, M. Asset bubbles in explaining top income shares. J Econ Inequal 19, 707–726 (2021). https://doi.org/10.1007/s10888-021-09481-y
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DOI: https://doi.org/10.1007/s10888-021-09481-y