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Capitalist Systems and Income Inequality

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  • Ranaldi, Marco
  • Milanovic, Branko

Abstract

The paper investigates the relationship between capitalism systems and their levels of income and compositional inequality (how the composition of income between capital and labor varies along income distribution). Capitalism may be seen to range between Classical Capitalism, where the rich have only capital income, and the rest have only labor income, and Liberal Capitalism, where many people receive both capital and labor incomes. Using a new methodology and data from 47 countries over the past 25 years, we show that higher compositional inequality is associated with higher inter-personal inequality. Nordic countries are exceptional because they combine high compositional inequality with low inter-personal inequality. We speculate on the emergence of homoploutic societies where income composition may be the same for all, but Gini inequality nonetheless high, and introduce a new taxonomy of capitalist societies. (Stone Center Working Paper Series)

Suggested Citation

  • Ranaldi, Marco & Milanovic, Branko, 2020. "Capitalist Systems and Income Inequality," SocArXiv mtyz3_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:mtyz3_v1
    DOI: 10.31219/osf.io/mtyz3_v1
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    1. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2022. "Estimating The Impact Of Trade And Offshoring On American Workers Using The Current Population Surveys," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 12, pages 275-289, World Scientific Publishing Co. Pte. Ltd..
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    4. Branko Milanovic, 2005. "Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys," The World Bank Economic Review, World Bank, vol. 19(1), pages 21-44.
    5. Amable, Bruno, 2003. "The Diversity of Modern Capitalism," OUP Catalogue, Oxford University Press, number 9780199261147.
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