Recent Trend in Income Inequality: Emphasis on the Finnish and the Swiss Cases
ABBET, CHRISTOPHE (2010)
ABBET, CHRISTOPHE
2010
Kansantaloustiede - Economics
Kauppa- ja hallintotieteiden tiedekunta - Faculty of Economics and Administration
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Hyväksymispäivämäärä
2010-09-16
Julkaisun pysyvä osoite on
https://urn.fi/urn:nbn:fi:uta-1-20868
https://urn.fi/urn:nbn:fi:uta-1-20868
Tiivistelmä
This paper is concerned with the evolution of within-country income inequality between individuals or households, with an emphasis on the Finnish and Swiss cases. One will see which trends or episodes in income inequality these two countries experienced, and which explanations have been given for these trends or episodes. However, in order to include this in a broader perspective, the paper starts by looking at the celebrated Kuznets hypothesis.
In his 1954 Presidential Address to the American Economic Association, Simon Kuznets made the hypothesis that in a growing economy, income inequality first increases and then decreases. It became known as the inverted U-shaped Kuznets Curve. If Kuznets mostly linked the evolution of income distribution to the process of industrialization, many different explanations were proposed, including imperfection in capital market, shift in demand for skilled labour and institutional change due to democratization.
During the two following decades, this hypothesis was widely considered as an unavoidable economic law. However, since the 1980s, Kuznets hypothesis lost its prestige, for various reasons, including a renewed increase in income inequality, observed first in Anglo-Saxon countries since the late 1970s. In short, the most usual alternative explanations for the renewed inequality increase are a skill-biased technological change, the impact of globalization, institutional changes such as a decrease in the minimum wage, a decline in unionization and a fall in the tax progressivity, or finally changes which may be linked to an ideological change due to the surge of the neo-liberal paradigm.
Increase in income inequality has also been experienced in Finland during the 1990s. It has been mostly linked to a deep economic recession with rising unemployment, as well as to a fall in the generosity of the social security system and to the introduction of a dual income tax. As for Switzerland, it is a rather peculiar case. First, Switzerland did not experience a decrease in income inequality during the first half of the 20th century, because it was spared by the big shocks from the Word Wars and the Great Depression and never had a highly progressive tax system. More recently, Switzerland experienced episodes of slight increases and decreases in income inequality, but so far few explanations are given. The available studies mostly considered structural changes as regards to population variables, such as age, education level, nationality and gender.
In his 1954 Presidential Address to the American Economic Association, Simon Kuznets made the hypothesis that in a growing economy, income inequality first increases and then decreases. It became known as the inverted U-shaped Kuznets Curve. If Kuznets mostly linked the evolution of income distribution to the process of industrialization, many different explanations were proposed, including imperfection in capital market, shift in demand for skilled labour and institutional change due to democratization.
During the two following decades, this hypothesis was widely considered as an unavoidable economic law. However, since the 1980s, Kuznets hypothesis lost its prestige, for various reasons, including a renewed increase in income inequality, observed first in Anglo-Saxon countries since the late 1970s. In short, the most usual alternative explanations for the renewed inequality increase are a skill-biased technological change, the impact of globalization, institutional changes such as a decrease in the minimum wage, a decline in unionization and a fall in the tax progressivity, or finally changes which may be linked to an ideological change due to the surge of the neo-liberal paradigm.
Increase in income inequality has also been experienced in Finland during the 1990s. It has been mostly linked to a deep economic recession with rising unemployment, as well as to a fall in the generosity of the social security system and to the introduction of a dual income tax. As for Switzerland, it is a rather peculiar case. First, Switzerland did not experience a decrease in income inequality during the first half of the 20th century, because it was spared by the big shocks from the Word Wars and the Great Depression and never had a highly progressive tax system. More recently, Switzerland experienced episodes of slight increases and decreases in income inequality, but so far few explanations are given. The available studies mostly considered structural changes as regards to population variables, such as age, education level, nationality and gender.