The Evolution of Income Composition Inequality in Italy, 1989–2016

Abstract

We study the evolution of inequality in income composition in terms of capital and labor income in Italy between 1989 and 2016. We document a rise in the share of capital income accruing to the bottom of the distribution, while the top of the distribution increases its share of labor income. This implies a falling degree of income composition inequality in the period considered and a weaker relationship between the functional and personal distribution of income in Italy. This result is robust to various specifications of self‐employment income; nonetheless, it hinges crucially on the treatment of rental incomes. While the dynamics of imputed rents has brought about a more equitable distribution of capital incomes across the income distribution, that of actual rents has led to higher concentration of capital incomes at the top in the decade preceding the outbreak of the financial crisis. Finally, we conceptualize a rule of thumb for policy makers seeking to reduce income inequality in the long run.

Income inequality, top shares of income and social classes in the 21st century

“…6 As in other studies (e.g. Iacono and Ranaldi, 2021), we exclude pensions and other transfers from the analysis because our interest lies in defining how the income derived from the production process is distributed among those that actively contribute to creating it. 1.…”

Is Income Inequality in Bulgaria Underestimated in Survey Data?

“…Therefore, no tax progressivity can be identified for the personal income from the wages of the respondents. Iacono and Ranaldi (2021) examine inequality in the composition of income from labour and capital in Italy. The results show that over the period 1989-2016, the degree of income inequality has decreased due to an increase in the share of capital income accumulating at the bottom of the distribution and an increase in the relative weight of labour income at the top of the distribution.…”

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