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Permanent Income Inequality: Australia, Britain, Germany, and the United States Compared

Author

Listed:
  • Andrew Leigh
Abstract
A common critique of most measures of income inequality, which are based on a single year's income, is that they fail to take account of income mobility. If income fluctuations are large, and individuals can smooth consumption, then high inequality and high mobility may be no worse than low inequality and low mobility. To test this, I use panel data from four countries – Australia, Britain, Germany and the United States – and estimate measures of permanent income inequality that are based on income averaged over multiple years. I find that: (1) using pre-government income, annual inequality and permanent inequality have grown in Germany and the US, while post-government income inequality has grown in the US; (2) comparing levels of annual post-government income inequality across countries, the ranking was the US, Australia, Britain, Germany; (3) comparing levels of permanent income inequality across countries, the ranking of triennial post-government inequality in the most recent year was the US, Australia, Germany, Britain; (4) in the most recent year, the most mobile country was Australia, while the least mobile was Germany. However, as a comparison of points (2) and (3) demonstrates, mobility had little effect on the overall rankings.

Suggested Citation

  • Andrew Leigh, 2009. "Permanent Income Inequality: Australia, Britain, Germany, and the United States Compared," CEPR Discussion Papers 628, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:dpaper:628
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    File URL: https://www.cbe.anu.edu.au/researchpapers/CEPR/DP628.pdf
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    References listed on IDEAS

    as
    1. Roland Benabou & Efe A. Ok, 2000. "Mobility as Progressivity: Ranking Income Processes According to Equality of Opportunity," Working Papers 150, Princeton University, School of Public and International Affairs, Discussion Papers in Economics.
    2. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
    3. Rolf Aaberge & Anders Björklund & Markus Jäntti & Mårten Palme & Peder J. Pedersen & Nina Smith & Tom Wennemo, 2002. "Income Inequality and Income Mobility in the Scandinavian Countries Compared to the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(4), pages 443-469, December.
    4. VAN KERM Philippe, 2003. "What Lies Behind Income Mobility? Reranking and Distributional Change in Belgium, Western Germany and the USA," IRISS Working Paper Series 2003-03, IRISS at CEPS/INSTEAD.
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    Cited by:

    1. Markus Jäntti & Stephen P. Jenkins, 2013. "Income Mobility," SOEPpapers on Multidisciplinary Panel Data Research 607, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Paul Gregg & Rosanna Scutella & Claudia Vittori, 2012. "Earnings Mobility and Inequality: An Integrated Framework," Melbourne Institute Working Paper Series wp2012n26, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    3. Nicholas Rohde & Kam Ki Tang & Prasada Rao, 2011. "Income volatility and insecurity in the U.S., Germany and Britain," Discussion Papers Series 434, School of Economics, University of Queensland, Australia.
    4. Nicholas Rohde & Kam Ki Tang & D.S. Prasada Rao, 2014. "Distributional Characteristics of Income Insecurity in the U.S., Germany, and Britain," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(S1), pages 159-176, May.

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    More about this item

    Keywords

    permanent income; income distribution; Australia; Britain; Germany; United States;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion

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