Hostname: page-component-f554764f5-fnl2l Total loading time: 0 Render date: 2025-04-22T13:22:48.390Z Has data issue: false hasContentIssue false
  • English
  • Français

A Schumpeterian exploration of Gini and top/bottom income shares

Published online by Cambridge University Press:  21 October 2024

Tetsugen Haruyama Open the ORCID record for Tetsugen Haruyama [Opens in a new window]
Tetsugen Haruyama*
Affiliation:
Graduate School of Economics, Kobe University, Kobe, Japan
*
Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Data show that an increase in the Gini coefficient is associated with a falling bottom $p_{B}$% income share and an increasing top $p_{T}$ % income share where, for example $p_{B}$ = 40 and $p_{T}$ = 1. This relationship, which we call the $X$ inequality relationship, is pervasive in the sense that it is observed in many countries, including the US, the UK, France and others. The purpose of this paper is (i) to construct a Schumpeterian growth model to explain the relationship, and (ii) to identify/quantify factors behind it via calibration of the US economy. Our model gives rise to a double-Pareto distribution of income as a result of entrant and incumbent innovations. Its advantage is that it allows us to develop iso-Gini loci and iso-income share schedules in a tractable way. Using a double-Pareto distribution as an approximation of an underlying income distribution, calibration analysis reveals that a declining business dynamism and fiscal policy changes in the past decades played a significant role in generating the $X$ inequality relationship in the US.

Keywords

growthinnovationGiniincome sharesdouble-Pareto distribution
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e49
Copyright
© The Author(s), 2024. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Acemoglu, D., Akcigit, U., Alp, H., Bloom, N. and Kerr, W. (2018) Innovation, reallocation, and growth. American Economic Review 108(11), 3450–3491.CrossRefGoogle Scholar
Acemoglu, D.and Cao, D. (2015) Innovation by entrants and incumbents. Journal of Economic Theory 157, 255–294.CrossRefGoogle Scholar
Aghion, P., Akcigit, U., Bergeaud, A., Blundell, R. and Hémous, D. (2019) Innovation and top income inequality. The Review of Economic Studies 86(1), 1–45.CrossRefGoogle Scholar
Aghion, P., Akcigit, U. and Howitt, P. (2014) What do we learn from schumpeterian growth theory?. In: Aghion, P., Akcigit, U. and Howitt, P.. (eds.), Handbook of Economic Growth, pp. 515–563. Amsterdam: Elsevier.Google Scholar
Aghion, P., Akcigit, U., Hyytinen, A. and Toivanen, O. (2017) Living the american dream in finland: The social mobility of inventors, mimeo.CrossRefGoogle Scholar
Aghion, P. and Howitt, P. (1992) A model of growth through creative desctruction. Econometrica 60(2), 323–351.CrossRefGoogle Scholar
Akcigit, U. and Ates, S. T. (2023) What happened to us business dynamism? Journal of Political Economy 131(8), 2059–2124.CrossRefGoogle Scholar
Akcigit, U. and Kerr, W. R. (2018) Growth through heterogeneous innovations. Journal of Political Economy 126(4), 1374–1443.CrossRefGoogle Scholar
Aoki, S. and Nirei, M. (2017) Zipf’s law, pareto’s law, and the evolution of top incomes in the united states. American Economic Journal: Macroeconomics 9(3), 36–71.Google Scholar
Atkinson, A. B., Piketty, T. and Saez, E. (2011) Top incomes in the long run of history. Journal of economic literature 49(1), 3–71.CrossRefGoogle Scholar
Barkai, S. (2020) Declining labor and capital shares. The Journal of Finance 75(5), 2421–2463.CrossRefGoogle Scholar
Beare, B. K., Seo, W.-K. and Toda, A. A. (2022) Tail behavior of stopped lévy processes with markov modulation. Econometric Theory 38(5), 986–1013.CrossRefGoogle Scholar
Beare, B. K. and Toda, A. A. (2022) Determination of Pareto exponents in economic models driven by Markov multiplicative processes. Econometrica 90(4), 1811–1833.CrossRefGoogle Scholar
Benhabib, J., Bisin, A. and Zhu, S. (2011) The distribution of wealth and fiscal policy in economies with finitely lived agents. Econometrica 79(1), 123–157.Google Scholar
Calvino, F., Criscuolo, C. and Verlhac, R. (2020) Declining Business Dynamism: Structural and Policy Determinants, Working Paper 94, OECD Science, Technology and Innovation Policy Papers.Google Scholar
Champernowne, D. G. (1953) A model of income distribution. The Economic Journal 63(250), 318–351.CrossRefGoogle Scholar
Decker, R., Haltiwanger, J., Jarmin, R. and Miranda, J. (2014) The role of entrepreneurship in us job creation and economic dynamism. Journal of Economic Perspectives 28(3), 3–24.CrossRefGoogle Scholar
Decker, R. A., Haltiwanger, J., Jarmin, R. S. and Miranda, J. (2016) Where has all the skewness gone? The decline in high-growth (young) firms in the us. European Economic Review 86, 4–23.CrossRefGoogle Scholar
Dinopoulos, E. and Segerstrom, P. (2010) Intellectual property rights, multinational firms and economic growth. Journal of Development Economics 92(1), 13–27.CrossRefGoogle Scholar
Fikri, K., Lettieri, J. and Reyes, A. (2017) Dynamism in retreat: Consequences for regions, markets, and workers, Tech. rep., Economic Innovation Group.Google Scholar
Furman, J. and Orszag, P. R. (2018) Slower Productivity and Higher Inequality: Are They Related?, Working Paper 2018-4, Peterson Institute for International Economics.CrossRefGoogle Scholar
Gabaix, X. and Landier, A. (2008) Why has ceo pay increased so much? The Quarterly Journal of Economics 123(1), 49–100.CrossRefGoogle Scholar
Gabaix, X., Lasry, J.-M., Lions, P.-L. and Moll, B. (2016) The dynamics of inequality. Econometrica 84(6), 2071–2111.CrossRefGoogle Scholar
Grossman, G. M. and Helpman, E. (1991) Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press.Google Scholar
Guvenen, F., Karahan, F., Ozkan, S. and Song, J. (2015) What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Dynamics?, Staff Reports 710, Federal Reserve Bank of New York.CrossRefGoogle Scholar
Guvenen, F., Ozkan, S. and Song, J. (2014) The nature of countercyclical income risk. Journal of Political Economy 122(3), 621–660.CrossRefGoogle Scholar
Jones, C. I. and Kim, J. (2018) A schumpeterian model of top income inequality. Journal of Political Economy 126(5), 1785–1826.CrossRefGoogle Scholar
Klette, T. J. and Kortum, S. (2004) Innovating firms and aggregate innovation. Journal of Political Economy 112(5), 986–1018.CrossRefGoogle Scholar
Kortum, S. (1997) Research, patenting and technological change. Econometrica 65(6), 1389–1419.CrossRefGoogle Scholar
Leigh, A. (2007) How closely do top income shares track other measures of inequality? The Economic Journal 117(524), F619–F633.CrossRefGoogle Scholar
Lentz, R. and Mortensen, D. T. (2008) An empirical model of growth through product innovation. Econometrica 76(6), 1317–1373.Google Scholar
Li, C.-W. (2001) On the policy implications of endogenous technological progress. Economic Journal 111(471), C164–C179.CrossRefGoogle Scholar
Li, C.-W. (2003) Endogenous growth without scale effects: A comment. American Economic Review 93(3), 1009–1018.CrossRefGoogle Scholar
Luttmer, E. G. J. (2011) On the mechanics of firm growth. The Review of Economic Studies 78(3), 1042–1068.CrossRefGoogle Scholar
Nallareddy, S., Rouen, E. and Serrato, J. C. S. (2018) Do corporate tax cuts increase income inequality?, Tech. rep., National Bureau of Economic Research.CrossRefGoogle Scholar
Nirei, M. (2009) Pareto Distributions in Economic Growth Models, IIR Working Paper 09-05, Institute of Innovation Research, Hitotsubashi University.Google Scholar
Peters, M. (2020) Heterogeneous markups, growth, and endogenous misallocation. Econometrica 88(5), 2037–2073.CrossRefGoogle Scholar
Piketty, T., Saez, E. and Zucman, G. (2018) Distributional national accounts: Methods and estimates for the united states. The Quarterly Journal of Economics 133(2), 553–609.CrossRefGoogle Scholar
Reed, W. J. (2001) The pareto, zipf and other power laws. Economics letters 74(1), 15–19.CrossRefGoogle Scholar
Reed, W. J. (2003) The Pareto law of incomes an explanation and an extension. Physica A: Statistical Mechanics and its Applications 319, 469–486.CrossRefGoogle Scholar
Reed, W. J. and Wu, F. (2008) New four-and five-parameter models for income distributions. In: Modeling Income Distributions and Lorenz Curves. Springer, pp. 211–223.CrossRefGoogle Scholar
Romer, P. (1990) Endogenous technological change. Journal of Political Economy 98(5, Part 2), S71–S102.CrossRefGoogle Scholar
Smith, M., Yagan, D., Zidar, O. and Zwick, E. (2019) Capitalists in the twenty-first century. The Quarterly Journal of Economics 134(4), 1675–1745.CrossRefGoogle Scholar
Toda, A. A. (2011) Income dynamics with a stationary double Pareto distribution. Physical Review E 83(4), 046122.CrossRefGoogle ScholarPubMed
Toda, A. A. (2012) The double power law in income distribution: Explanations and evidence. Journal of Economic Behavior & Organization 84(1), 364–381.CrossRefGoogle Scholar
Toda, A. A. and Walsh, K. (2015) The double power law in consumption and implications for testing euler equations. Journal of Political Economy 123(5), 1177–1200.CrossRefGoogle Scholar
UNU-WIDER. (2020) World income inequality database, DataBase WIID4 (May 6, 2020), United National University.Google Scholar
Supplementary material: File

Haruyama supplementary material 1

Haruyama supplementary material
Download Haruyama supplementary material 1(File)
File 595.2 KB
Supplementary material: File

Haruyama supplementary material 2

Haruyama supplementary material
Download Haruyama supplementary material 2(File)
File 10.6 KB