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Tax Reforms, Dividend Policy and Trends in Income Inequality Empirical Evidence based on Norwegian Data

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This paper discusses the degree of intertemporal comparability of national estimates of income inequality when data are based on income tax records. The problem of comparability is particular crucial when major tax reforms have taken place and pre- and post-reform income data are used as basis for comparing trends in income inequality. Particular attention is paid to the definition and measurement of income from shares. The conventional wisdom that the increase in inequality in Norway during the 1990's was caused by a rising disequalizing contribution of capital income is questioned by the present results. The rise in income inequality coincided with the implementation of a major tax reform that affected the financing incentives in the corporate sector and the income shifting incentives in small enterprises. Thus, when tax reported dividends are used as a measurement of returns from shares, changes in the estimated income inequality may be a result of changes in the income reporting behavior rather than factual changes in the distribution of income. Our results suggest that the observed rise in income inequality during the 1990's to some extent can be explained by a change in the dividend policy of the corporations, induced by the tax reform in 1992. When the total return from shares is taken into account, we find less increase in the level of inequality and less increase in the contribution to inequality from share ownership.

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  • Erik Fjærli & Rolf Aaberge, 2000. "Tax Reforms, Dividend Policy and Trends in Income Inequality Empirical Evidence based on Norwegian Data," Discussion Papers 284, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:284
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    Cited by:

    1. Cecilia García-Peñalosa & Elsa Orgiazzi, 2013. "Factor Components of Inequality: A Cross-Country Study," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 689-727, December.
    2. Almås, Ingvild & Havnes, Tarjei & Mogstad, Magne, 2011. "Baby Booming Inequality? Demographic Change and Inequality in Norway, 1967{2004," Discussion Paper Series in Economics 6/2010, Norwegian School of Economics, Department of Economics.
    3. Enrico Rubolino & Daniel Waldenström, 2020. "Tax progressivity and top incomes evidence from tax reforms," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(3), pages 261-289, September.
    4. Cecilia Garcia Peñalosa & Orgiazzi, E., 2011. "GINI DP 12: Factor Components of Inequality. A Cross-Country Study," GINI Discussion Papers 12, AIAS, Amsterdam Institute for Advanced Labour Studies.
    5. Rolf Aaberge & Magne Mogstad, 2011. "Robust inequality comparisons," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(3), pages 353-371, September.
    6. Ingvild Almås & Tarjei Havnes & Magne Mogstad, 2011. "Baby booming inequality? Demographic change and earnings inequality in Norway, 1967–2000," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 9(4), pages 629-650, December.
    7. Rolf Aaberge & Magne Mogstad, 2006. "On the Definition and Measurement of Chronic Poverty," ICER Working Papers 36-2006, ICER - International Centre for Economic Research.
    8. Cecilia Garc a-Pe alosa & Richard Breen & Elsa Orgiazzi, 2008. "Factor Components of Inequality: Cross-Country Differences and Time Changes," LIS Working papers 503, LIS Cross-National Data Center in Luxembourg.
    9. Aaberge, Rolf & Langørgen, Audun & Mogstad, Magne & Østensen, Marit, 2008. "The Impact of Local Public Services and Geographical Cost of Living Differences on Poverty Estimates," IZA Discussion Papers 3686, Institute of Labor Economics (IZA).
    10. Rolf Aaberge, 2007. "Gini’s nuclear family," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 5(3), pages 305-322, December.
    11. Rolf Aaberge & Anthony B. Atkinson, 2008. "Top Incomes in Norway," Discussion Papers 552, Statistics Norway, Research Department.
    12. Magne Mogstad, 2007. "Measuring Income Inequality under Restricted Interpersonal Comparability," Discussion Papers 498, Statistics Norway, Research Department.
    13. Erling Røed Larsen, 2002. "Consumption Inequality in Norway in the 80s and 90s," Discussion Papers 325, Statistics Norway, Research Department.

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    More about this item

    Keywords

    Income definition; capital income; corporate income; tax reform; income inequality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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