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Introduction

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Secular Stagnation Theories

Part of the book series: Springer Studies in the History of Economic Thought ((SSHET))

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Abstract

During the past decades, a slowdown in the trend rates of economic growth as well as rising income disparities have been among the economic and social challenges in several major advanced countries. While both issues have particularly moved to the forefront of the political and public debate in the aftermath of the financial crisis of 2008–2009, they are also the empirical underpinning of this book. Accordingly, the first chapter takes a closer look at the empirical developments of both economic growth and especially the distribution of income in major world economies during the past decades. By providing various descriptive statistics based on different data sources, such as the Luxembourg Income Study, this chapter sets the overall framework and provides an outline of the book.

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Notes

  1. 1.

    While the following remarks focus on the development of income distribution, Appendix C briefly refers to the distribution of wealth in some advanced countries.

  2. 2.

    It should be noted that labor and capital income shares are dependent on the business cycle. As profits fluctuate more procyclically than labor income, the share of capital income in national income typically declines during depressions and rises in years of economic prosperity. Conversely, the labor income share tends to rise during depressions and to decline in years of economic prosperity.

  3. 3.

    For further remarks on the functional distribution and cross-distribution of income, see also Kalmbach (1972, pp. 154–162, 185–192) and Kurz (1977, pp. 153–155).

  4. 4.

    On the importance of the personal distribution of income, see also Haslinger and Stönner-Venkatarama (1998, pp. 22–24).

  5. 5.

    Similar developments also apply to the distribution of net wealth. See Appendix C.

  6. 6.

    Building on Palma’s (2006, 2011) cross-country empirical finding that variations in income inequality are mainly reflected in changes in the income shares of the bottom 40% and the top ten percent of the income hierarchy, the Palma index was originally proposed by Cobham and Sumner (2013a, b) as the ratio of the income share of the top ten percent to the income share of the bottom 40% of the distribution. In contrast to the commonly used Gini coefficient, which is oversensitive to changes in the middle of the income distribution, the Palma index is better suited to capture variations at the lower and upper ends of the income scale (Cobham et al. 2016). As the bottom 40% comprise four times as many people as the top ten percent of the distribution, in Fig. 1.3b (and also in Fig. 1.6b) the Palma index as originally defined by Cobham and Sumner (2013a, b) was multiplied by a factor of four to allow for a more intuitive interpretation.

  7. 7.

    Piketty et al. (2014) identify three channels through which high-income recipients react to changes in top tax rates, resulting in higher top gross income shares (as calculated based on tax records) when top marginal tax rates decline, and vice versa. A fall in top tax rates tends, first, to raise top income recipients’ economic activity, secondly, to reduce tax avoidance, thus raising income reported to national tax authorities, and, thirdly, to increase the incentive of high-income earners “[...] to bargain more aggressively for higher pay [...]” (Piketty et al. 2014, p. 268). On the example of the United States, however, Piketty et al. (2014, p. 232) show that changes in tax avoidance and thus in income reported to tax authorities “[...] cannot account for a significant fraction of the long-run surge in top incomes [...]” since the 1960s. The evolution of top gross income shares is thus not considered a statistical artifact, but is assumed to reflect actual developments. See also Morelli et al. (2015, pp. 660–665).

  8. 8.

    On the importance of some degree of income inequality in capitalist economies, Krelle (1962, p. 159, own translation) held, “To spur joy of work and ambition and to reward superior performances, lower [income] differences are [...] sufficient. But there is also a limit to equality, which—from an economic perspective—it is impossible to pass in a free market economy, and—if it were passed—would also be unjust and unfavorable. The slacker and the hard worker, the untalented and the talented man, he who performs simple tasks bearing little responsibility, and he whose job is characterized by high degrees of difficulty, responsibility, and perhaps risk, they also have to be differentiated in terms of their income. Dull egalitarianism is an evil.”

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  1. University of Hohenheim, Stuttgart, Baden-Württemberg, Germany

    Christina Anselmann

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Anselmann, C. (2020). Introduction. In: Secular Stagnation Theories. Springer Studies in the History of Economic Thought. Springer, Cham. https://doi.org/10.1007/978-3-030-41087-2_1

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