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How Business Income Measures Affect Income Inequality and the Tax Burden

Author

Listed:
  • Aaberge, Rolf

    (Statistics Norway)

  • Modalsli, Jorgen Heibo

    (Oslo Metropolitan University)

  • Francesconi, Marco

    (University of Essex)

  • Vestad, Ola L.

    (Statistics Norway)

Abstract

This paper presents estimates of income concentration and inequality for Norway using a new comprehensive measure of income, which identifies business income as it is earned by companies rather than when it is paid out as dividends to owners. We assemble several sources of high quality register data that allow us to account for multiple layers of business ownership across all companies between 2001 and 2018. Compared to official statistics, the new measure implies that the share of income attributable to the top 1% of the distribution more than doubles and the Gini coefficient estimates increase by about 40%. Our new measure identifies substantial tax regressivity for individuals in the top percentile, a feature that cannot be detected by standard income measures. For instance, while the share of gross income paid in taxes by individuals at the 99th percentile is about 36% in 2016, the corresponding share paid by individuals in the top 1% is 19%.

Suggested Citation

  • Aaberge, Rolf & Modalsli, Jorgen Heibo & Francesconi, Marco & Vestad, Ola L., 2024. "How Business Income Measures Affect Income Inequality and the Tax Burden," IZA Discussion Papers 17458, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17458
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    Keywords

    income distribution; top income shares; Gini coefficient; dividends; retained earnings; tax burden;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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