Income inequality, taxation, collective bargaining and trade. A longitudinal analysis of 19 OECD countries in the period 1981-2011

Abstract

This thesis studies determinants of income inequality using data from The World Top Incomes Database. The focus is on top tax rates, unions and trade openness. There is found that the erosion of unions and top tax rates are associated with the rise in top income shares in the sample of OECD countries. In addition, there is found that increase of trade openness is associated with the increase in top income shares. There is support for a lag structure of tax changes, and a positive cross-level interaction between the level of taxation in the period and the effect of tax changes. In addition, there is support for a significant positive interaction between the level of trade openness and the effect of union density changes. These associations are found utilizing a random-effects multilevel model, separating between and within effects, applied to annual longitudinal data covering the period 1981-2011. The results are largely supported by fixed-effects and first-differenced models.