Abstract
Determinants of inequality depend on the ability to take advantage of economic opportunities and responses to economic shocks. The Kuznets inverted u-shaped curve maintains that inequality worsens during industrialization and improves afterward. Other factors are public policy regarding taxes, including wealth taxation and government spending, labor force skills and unionization, institutions, education, resource endowments, and demographic factors such as aging and cohort size. Globalization, portfolio composition, home ownership rates, technological revolutions, changes in factor returns, wars, and economic shocks—as well as changes in economic growth patterns—are also factors. These factors can either push inequality up or pull it down with the long-term trend the outcome of a resultant between these forces, some of which exhibiting both push and pull tendencies at points in or over time.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
- 2.
Along with government, other types of social institutions can also affect wealth and inequality. For example, religious affiliation can also be a factor in wealth accumulation as well as its distribution, if they influence activities such as savings, child bearing, and inheritance. See Di Matteo (2016b).
- 3.
As another example, Spain sees a fall in income inequality during the opening phases of its economy opening up to international competition from the 1850s to the 1890s and then a rise in inequality from the 1890s to the start of World War I, which coincided with a return to protectionism. See Escosura (2008).
- 4.
- 5.
For additional detail examining the link between age structure and wealth inequality, see Di Matteo (2001).
- 6.
Certainly, evidence for Canada also suggests periods of rapid economic growth like the wheat boom era were also associated with rising inequality. See Di Matteo (2012).
- 7.
- 8.
For example , Saez and Veall (2005) showed that Canadian top income shares were negatively correlated with top marginal income tax rates.
- 9.
The Economic Inequality Across Italy and Europe Research Project (EINITE) headed by Guido Alfani, and including researchers Francesco Ammannati, Matteo Di Tullion, Roberta Frigeri, Hector Garcia Monero, Sergio Sardone and Davide De Franco, Fabrice Boudjaaba, Carlos Santiago-Caballero, and Wouter Ryckbosch housed at Bocconi University, has as its main research questions the relationship between economic inequality and economic growth.
- 10.
Pikkety et al. (2014).
- 11.
These countries include Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and the United States. The data set and documentation are available at: http://www.macrohistory.net/data. Accessed October 2016. Òscar Jordà, Moritz Schularick, and Alan M. Taylor. 2017. ‘Macrofinancial History and the New Business Cycle Facts’. NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press.
- 12.
Calculations by author.
- 13.
Along with the shock of war, plague and pestilence may also be factors . Alfani and Ammannati (2017) note declining inequality in the Florentine state in the wake of the Black Death from 1348 to 1349.
- 14.
- 15.
Piketty (2014: 106–109).
- 16.
Piketty (2014: 147).
- 17.
During World War II, Canadian income tax rates soared. The pre-World War II marginal tax rate on taxable income between $1000 and $2000 in the dollars of the day was 4 percent. By 1942, it had increased to 44 percent. For taxable income between $10,000 and $15,000, it was 13.7 percent before the war, but fully 69 percent by 1942. See Di Matteo (2017b).
- 18.
The growth of the public sector is also an area of substantial scholarship. Two key explanations are Wagner’s Law and the Peacock-Wiseman Displacement Hypothesis. Wagner’s Law maintains government expenditure grows faster than income in industrializing countries because government expenditures such as social welfare expenditures are income elastic. Peacock and Wiseman argue that the growth of public spending is driven by taxpayer tolerance of taxation and this tolerance is greater during times of national or social crisis such as war. See Wagner (1893, 1894) and Peacock and Wiseman (1967). See also Tanzi (2011) for an overview of the changing role of the state.
- 19.
Author’s calculations from data obtained from the Jorda-Schularick-Taylor Macro History Database. See: The data set and documentation are available at: http://www.macrohistory.net/data. Oscar Jorda, Moritz Schularick, and Alan M. Taylor. 2017. ‘Macrofinancial History and the New Business Cycle Facts’. NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press.
- 20.
- 21.
In the subsequent regression work of the next section, government size is not explicitly controlled for given the heavy correlation of this expansion with the post-war economic boom variable and the contraction of the government sector with the second era of globalization , as well as the relaxation of estate tax regimes after 1970.
- 22.
For the United States, data from the Historical Statistics of the United States, Colonial Times to 1970 for the period 1890–1970, and OECD numbers for the post-1990 period, suggest increase in the federal share of total government spending over time. For the period 1870–1938, the average federal share was approximately 40 percent. By the late 1990s, the federal share of total government spending in the United States exceeded 50 percent. By comparison, in the late 1990s, numbers from the OECD show that the central government share of expenditure in the United Kingdom—traditionally more centralized—was 90 percent, whereas by 2013, it has declined to just over 80 percent.
- 23.
- 24.
Davies /Shorrocks , ‘Distribution’ (2000: 643–644).
- 25.
For example, the Royal Commission on the Distribution of Income and Wealth (1979) for the United Kingdom found the reduction in the wealth share of the top tiers of the wealth distribution over the 1972–1976 period to be the result of a rise in land prices and a drop in the stock market.
- 26.
Landy (2013).
- 27.
Historical Statistics of the United States, Colonial Times to 1970, Series N238-245. See: https://www.census.gov/library/publications/1975/compendia/hist_stats_colonial-1970.html
- 28.
Source: Federal Reserve Economic Data. RHORUSQ156N: Homeownership Rate for the United States, Percent, Quarterly, Not Seasonally Adjusted.
- 29.
See: Statistics Canada (2013) National Household Survey: Income and Housing—Homeownership and Shelter Costs in Canada, National Household Survey year 2011 (99-014-X). http://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/2011002/c-g/c-g01-eng.cfm
- 30.
- 31.
Disney and Luo (2014).
- 32.
Of course, nothing is ever actually free. Recipients of land grants nonetheless had to commit to working the land for a given period of time and often even paid a small nominal fee.
- 33.
Di Matteo (2012).
- 34.
- 35.
See Di Matteo (2012).
- 36.
Ryan-Collins et al. (2017) note how Thomas Jefferson associated small-scale land ownership as a virtue and how in the twentieth century politicians have promoted home ownership as means of promoting democracy.
- 37.
Card et al. (2004).
- 38.
Data Source: OECD STAT Aug 23, 2017.
- 39.
Source: Guardian Trade Union Database. https://www.theguardian.com/news/datablog/2010/apr/30/union-membership-data#data. For a discussion see Lewis (2010).
- 40.
For an overview of Canadian labor history, see: http://www.thecanadianencyclopedia.ca/en/article/working-class-history/
- 41.
See Riddell (1993).
- 42.
Mayer (2004).
- 43.
Riddell (1993), for the period 1920–1990, is union membership as a percentage of nonagricultural paid workers. The OECD numbers for 1980–2014 are from OECD STAT and are for union members as a percent share of wage and salary workers.
- 44.
See Galarneau and Sohn (2013).
- 45.
Intergenerational wealth transmission can have significant effects on wealth distribution over time. The simple decision as to whether inheritances go to the firstborn son (primogeniture) or whether there is more partible or equal division (multi-geniture) is important in affecting wealth distribution. See Di Matteo (2016a, b).
- 46.
- 47.
Delong (2003: 4–5).
- 48.
Ransom and Sutch (1986) argued that the nineteenth century saw America’s move from a target bequest motive to life-cycle saving. Using evidence from surveys of industrial workers in Michigan and Maine, they found declining savings rates for older workers and a hump-shaped profile that would indicate life-cycle saving . Di Matteo (1997) using probate data also finds evidence of such a transition for the nineteenth century in Ontario. In the colonial United States, Alston and Schapiro (1984) argue the North was characterized by multi-geniture and the South primogeniture. Salmon (1980) finds that Germans in east-central Illinois used partible inheritance and the Irish impartible. Newell (1986) for Butler County, Ohio found more equal estate division over time. The British legal legacy in nineteenth century English Canada made primogeniture dominant, but there was a move toward greater equality in estate division. Gagan (1976) describes three inheritance systems in nineteenth-century Peel County, Ontario: partible, impartible, and partible-impartible. While the first two are self-explanatory, the last is whereby the estate was devolved on one or several heirs (usually males) with compensation payments to the siblings.
- 49.
See The Economist (2017) ‘Death of the death tax’, November 25th to December 1st, 20–22.
- 50.
The Canadian federal estate tax ended in 1973 as part of a process of tax reform, given that it was believed that the presence of both capital gains taxation at death and an estate tax amounted to double taxation.
- 51.
References
Alfani, G. (2015). Economic Inequality in Northwestern Italy: A Long-Term View (Fourteenth to Eighteenth Centuries). Journal of Economic History, 75(4), 1058–1096.
Alfani, G., & Ammannati, F. (2017). Long-Term Trends in Economic Inequality: The Case of the Florentine State, c. 1300–1800. The Economic History Review, 70(4), 1072–1102.
Alfani, G., & Ryckbosch, W. (2016). Growing Apart in Early Modern Europe? A Comparison of Inequality Trends in Italy and the Low Countries, 1500–1800. Explorations in Economic History, 62, 1430153.
Alston, L. J., & Schapiro, M. O. (1984). Inheritance Laws Across Colonies: Causes and Consequences. Journal of Economic History, 44(2), 277–287.
Ando, A., & Modigliani, F. (1963). The ‘Life-Cycle’ Hypothesis of Saving: Aggregate Implications and Tests. American Economic Review, 53, 55–84.
Armour, P., Burkhauser, R. V., & Larrimore, J. (2013). Deconstructing Income Inequality Measures: A Crosswalk from Market Income to Comprehensive Income. American Economic Review: Papers and Proceedings, 103(3), 173–177.
Atack, J., & Bateman, F. (1981). Egalitarianism, Inequality, and Age: The Rural North in 1860. Journal of Economic History, XLI, 85–93.
Atkinson, A. B., & Brandolini, A. (2001). Promise and Pitfalls in the Use of “Secondary” Data-Sets: Income Inequality in OECD Countries as a Case Study. Journal of Economic Literature, 39(3), 771–799.
Barro, R. J. (2000). Inequality and Growth in a Panel of Countries. Journal of Economic Growth, 5, 5–32.
Barro, R. J. (2008). Inequality and Growth Revisited. ADB Working Paper on Regional Economic Integration No. 11.
Bernheim, B. D., Shleifer, A., & Summers, L. H. (1985). The Strategic Bequest Motive. Journal of Political Economy, 93(6), 1045–1076. https://doi.org/10.1086/261351.
Burkhauser, R. V., Hahn, M., & Wilkins, R. (2013). Measuring Top Incomes Using Tax Record Data: A Cautionary Tale from Australia. NBER Working Paper No. 19121.
Canaday, N. (2008). The Accumulation of Property by Southern Blacks and Whites: Individual-Level Evidence from a South Carolina Cotton County, 1910–1919. Explorations in Economic History, 45, 51–75.
Card, D., Lemieux, T., & Riddell, C. (2004). Unions and Wage Inequality. Journal of Labour Research, 25(4), 519–559.
Davies, J. B., & Shorrocks, A. F. (2000). The Distribution of Wealth. In A. B. Atkinson & F. Bourguignon (Eds.), Handbook of Income Distribution (Vol. 1, pp. 605–675). New York: Elsevier Science.
Deaton, A. (2013). The Great Escape: Health, Wealth and the Origins of Inequality. Princeton: Princeton University Press.
Deininger, K., & Squire, L. (1998). New Ways of Looking at Old Issues: Inequality and Growth. Journal of Development Economics, 57, 259–287.
Delong, B. (2003). Bequests: An Historical Perspective. In A. H. Munnell & A. Sundén (Eds.), Death and Dollars: The Role of Gifts and Bequests in America, Chapter 2. Washington, DC: Brookings Institution Press.
Di Matteo, L. (1997). The Determinants of Wealth and Asset Holding in Nineteenth Century Canada: Evidence from Micro-data. Journal of Economic History, 57(4), 907–934.
Di Matteo, L. (2001). Patterns and Determinants of Wealth Inequality in Late-Nineteenth Century Ontario. Social Science History, 25(3), 347–380.
Di Matteo, L. (2012). Land and Inequality in Canada 1870–1930. Scandinavian Economic History Review, 60(3), 309–334.
Di Matteo, L. (2013b). Measuring Government in the 21st Century: An International Overview of the Size and Efficiency of Public Spending. Vancouver: Fraser Institute.
Di Matteo, L. (2016a). Wealth Distribution and the Canadian Middle Class: Historical Evidence and Policy Implications. Canadian Public Policy, 42(2), 132–151.
Di Matteo, L. (2016b). All Equal in the Sight of God: Economic Inequality and Religion in the Early Twentieth Century. European Review of Economic History, 20, 23–45.
Di Matteo, L. (2017b). Major Changes to the Federal Personal Income Tax: 1917–2017. In W. Watson & J. Clemens (Eds.), Zero to 50 in 100 Years: The History and Development of Canada’s Personal Income Tax. Vancouver: Fraser Institute.
Disney, R., & Luo, G. (2014). The Right to Buy Public Housing in Britain: A Welfare Analysis (Working paper W15/05). Institute for Fiscal Studies.
Dupont, B., & Rosenbloom, J. (2016, April). The Impact of the Civil War on Southern Wealth Holders. NBER Working Paper No. 22184.
de la Escosura, L. P. (2008). Inequality, Poverty and the Kuznets Curve in Spain, 1850–2000. European Review of Economic History, 12(3), 287–324.
Gagan, D. (1976). The Indivisibility of Land: A Micro-analysis of the System of Inheritance in Nineteenth Century Ontario. Journal of Economic History, 36, 126–141.
Galarneau, D., & Sohn, T. (2013). Long-Term Trends in Unionization. Statistics Canada, Insights on Canadian Society. 75-006-X. http://www.statcan.gc.ca/pub/75-006-x/2013001/article/11878-eng.pdf
Gallman, R. E. (1978). Professor Pessen on the ‘Egalitarian Myth’. Social Science History, 2, 194–207.
Gallup, J. L. (2012). Is There a Kuznets Curve? Working Paper. https://www.pdx.edu/econ/sites/www.pdx.edu.econ/files/kuznets_complete.pdf
Green, A. G. (1967). Regional Aspects of Canada’s Economic Growth, 1890–1929. The Canadian Journal of Economics, 33(2), 232–245.
Green, A. G. (1968). Regional Inequality, Structural Change, and Economic Growth in Canada. Economic Development and Cultural Change, 17, 567–583.
Green, A. G. (1971). Regional Aspects of Canadian Economic Growth. Toronto: University of Toronto Press.
Gregson, M. E. (1996). Wealth Accumulation and Distribution in the Midwest in the Late Nineteenth Century. Explorations in Economic History, 33, 524–538.
Higgins, M., & Williamson, J. G. (2002). Explaining Inequality the World Round: Cohort Size, Kuznets Curves, and Openness. Southeast Asian Studies, 40(3), 268–302. Reprinted in B. Milanovic (Ed.) (2012). Globalization and Inequality. Cheltenham: Elgar.
King, R. (2012). Theories and Typologies of Migration: An Overview and A Primer. Willy Brandt Working Papers in International Migration and Ethnic Relations, Malmo University, 3/12.
Kuznets, S. (1955). Economic Growth and Income Inequality. American Economic Review, XLV(1), 1–28.
Kuznets, S. (1966). Modern Economic Growth Rate, Structure and Spread. New Haven: Yale University Press.
Landy, B. (2013, August 28). A Tale of Two Recoveries: Wealth Inequality After the Great Recession. The Century Foundation. Issue Brief. https://tcf.org/content/commentary/a-tale-of-two-recoveries-wealth-inequality-after-the-great-recession/
Lee, E. S. (1966). A Theory of Migration. Demography, 3(1), 47–57.
Lemon, J. T. (1972). The Best Poor Man’s Country: A Geographical Study of Early Southeastern Pennsylvania. Baltimore: John Hopkins Press.
Lewis, S. (2010, April 30). How Union Membership Has Grown—And Shrunk. The Guardian. https://www.theguardian.com/news/datablog/2010/apr/30/union-membership-data#data
Lindert, P. H. (1991). Toward a Comparative History of Income and Wealth. In Y. S. Brenner, H. Kaelble, & M. Thomas (Eds.), Income Distribution in Historical Perspective (pp. 212–231). Cambridge: Cambridge University Press.
Lindert, P. H., & Williamson, J. G. (1985). Growth, Equality and History. Explorations in Economic History, 22, 341–377.
Mayer, G. (2004). Union Membership Trends in the United States. Congressional Research Service Report for Congress. Cornell University ILR School, DigitalCommons@ILR.
Milanovic, B. (2016). Global Inequality: A New Approach for the Age of Globalisation. Cambridge, MA: Harvard University Press.
Modigliani, F. (1988a). Measuring the Contribution of Intergenerational Transfers to Total Wealth: Conceptual Issues and Empirical Findings. In D. Kessler & A. Masson (Eds.), Modelling the Accumulation and Distribution of Wealth (pp. 21–52). Oxford: Clarendon Press..
Modigliani, F. (1988b). The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth. Journal of Economic Perspectives, 2(2), 15–40. https://doi.org/10.1257/jep.2.2.15.
Newell, W. H. (1986). Inheritance on the Maturing Frontier: Butler County Ohio, 1803–1865. In S. L. Engerman & R. E. Gallman (Eds.), Long-Term Factors in American Economic Growth, NBER Studies in Income and Wealth (Vol. 51, pp. 261–303). Chicago: University of Chicago Press.
Peacock, A. T., & Wiseman, J. (1967). The Growth of Public Expenditure in the United Kingdom (Vol. 1). London: Allen & Unwin.
Piketty, T. (2000). Theories of Persistent Inequality and Intergenerational Mobility. In A. B. Atkinson & F. Bourguignon (Eds.), Handbook of Income Distribution (Vol. I, pp. 429–476). New York: Elsevier Science.
Piketty, T. (2014). Capital in the 21st Century. Cambridge, MA: Harvard University Press.
Piketty, T., & Saez, E. (2013). A Theory of Optimal Inheritance Taxation. Econometrica, 81(5), 1851–1886.
Piketty, T., & Zucman, G. (2013). Capital Is Back: Wealth-Income Ratios in Rich Countries, 1700–2010. Working Paper, Paris School of Economics.
Piketty, T., Postel-Vinay, G., & Rosenthal, J.-L. (2006). Wealth Concentration in a Developing Economy: Paris and France, 1807–1994. American Economic Review, 96(1), 236–256.
Pikkety, T., Postel-Vinay, G., & Rosenthal, J.-L. (2014). Inherited vs Self-Made Wealth: Theory & Evidence from a Rentier Society (Paris 1872–1927). Explorations in Economic History, 51, 21–40.
Ransom, R. L., & Sutch, R. (1986). The Life-Cycle Transition: A Preliminary Report on Wealth-Holding in America, Chapter 10. InIncome and Wealth Distribution in Historical Perspective (Vol. 1). Utrecht: Rijksuniversiteit te Utrecht, Two Volumes.
Riddell, C. (1993). Unionization in Canada and the United States: A Tale of Two Countries, Chapter 4. In D. Card & R. B. Freeman (Eds.), Small Differences that Matter: Labor Markets and Income Maintenance in Canada and the United States (pp. 109–148). Chicago: National Bureau of Economic Research, University of Chicago Press.
Rognlie, M. (2015). Deciphering the Fall and Rise in the Net Capital Share: Accumulation on Scarcity? Brookings Papers on Economic Activity, Spring, pp. 1–54.
Roine, J., & Waldenström, D. (2015). Long-Run Trends in the Distribution of Income and Wealth. In A. B. Atkinson & F. Bourguignon (Eds.), Handbook of Income Distribution (Vol. 2A, pp. 469–592). Amsterdam: Elsevier.
Royal Commission. (1979). Royal Commission on the Distribution of Income and Wealth. Report No. 7, Fourth Report on the Standing Reference. London: HMSO.
Ryan-Collins, J., Lloyd, T., & Macfarlane, L. (2017). Rethinking the Economics of Land and Housing. London: Zed Books.
Ryckbosch, W. (2017). Economic Inequality and Growth Before the Industrial Revolution: The Case of the Low Countries (Fourteenth to Nineteenth Centuries). European Review of Economic History, 20, 1–22.
Saez, E., & Veall, M. (2005). The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence. American Economic Review, 95, 831–849.
Salmon, S. (1980). Ethnic Differences in Farm Family Land Transfers. Rural Sociology, 45, 290–308.
Savvidesa, A., & Stengos, T. (2000). Income Inequality and Economic Development: Evidence from the Threshold Regression Model. Economics Letters, 69, 207–212.
Scheidel, W. (2017a, February 21). The Only Thing, Historically, That’s Curbed Inequality: Catastrophe. The Atlantic. https://www.theatlantic.com/business/archive/2017/02/scheidel-great-leveler-inequality-violence/517164/
Scheidel, W. (2017b). The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century. Princeton: Princeton University Press.
Skott, P. (2011). Increasing Inequality and Financial Instability. Department of Economics Working Paper, University of Massachusetts, Amherst.
Statistics Canada. (2013). National Household Survey: Income and Housing – Homeownership and Shelter Costs in Canada, National Household Survey year 2011 (99-014-X). http://www12.statcan.gc.ca/nhs-enm/2011/assa/99-014-x/2011002/c-g/c-g01-eng.cfm
Stewart, J. I. (2006). Migration to the Agricultural Frontier and Wealth Accumulation, 1860–1870. Explorations in Economic History, 43(4), 547–577.
Stiglitz, J. (2012). The Price of Inequality. New York: W.W. Norton & Company.
Tanzi, V. (2011). Government Versus Markets: The Changing Economic Role of the State. Cambridge: Cambridge University Press.
The Economist Magazine. (2017). Death of the Death Tax. November 25th to December 1st, pp. 20–22.
Wagner, A. (1893). Grundlegung der politischen Oekonomie: 1. Theil, Grundlagen der Volkswirthschaft. Leipzig: CF Winter, 2 vols.
Wagner, A. (1894). Grundlegung der politischen Oekonomie: 2. Theil, Volkswirthschaft und Recht, besonders Vermogensrecht. Leipzig: CF Winter, 5 vols.
Williamson, J. G. (1965). Regional Inequality and the Process of National Development. Economic Development and Cultural Change, 13, 1–84, Part 2.
Williamson, J. G. (1996a). Globalization and Inequality Then and Now: The Late 19th and Late 20th Centuries Compared. National Bureau of Economic Research, Working Paper 5491.
Williamson, J. G. (1996b). Globalization, Convergence and History. The Journal of Economic History, 56(2), 277–306.
Williamson, J. G. (1998). Growth, Distribution and Demography: Some Lessons from History. Explorations in Economic History, 35(3), 241–271.
Williamson, J. G., & Lindert, P. H. (1980). American Inequality: A Macroeconomic History. New York: Academic Press.
Author information
Authors and Affiliations
Rights and permissions
Copyright information
© 2018 The Author(s)
About this chapter
Cite this chapter
Di Matteo, L. (2018). Understanding the Determinants of Wealth Inequality. In: The Evolution and Determinants of Wealth Inequality in the North Atlantic Anglo-Sphere, 1668–2013. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-319-89773-8_4
Download citation
DOI: https://doi.org/10.1007/978-3-319-89773-8_4
Published:
Publisher Name: Palgrave Pivot, Cham
Print ISBN: 978-3-319-89772-1
Online ISBN: 978-3-319-89773-8
eBook Packages: Economics and FinanceEconomics and Finance (R0)