Veranstaltungen des DIW Berlin/
Events of DIW Berlin

17 October 2018

DIW Seminar on Macroeconomics and Financial Markets "A Schumpeterian Model of Top Income Inequality"

Top income inequality rose sharply in the United States over the last 40 years but increased only slightly in economies like France and Japan. Why? This paper explores a model in which heterogeneous entrepreneurs, broadly interpreted, exert effort to generate exponential growth in their incomes. On its own, this force leads to rising inequality. Creative destruction by outside innovators restrains this expansion and induces top incomes to obey a Pareto distribution. The development of the world wide web and a reduction in top tax rates are examples of changes that raise the growth rate of entrepreneurial incomes and therefore increase Pareto inequality. In contrast, policies that stimulate creative destruction reduce top inequality. Examples include research subsidies or a decline in the extent to which incumbent firms can block new innovation. Differences in these considerations across countries and over time may explain the varied patterns of top income inequality that we see in the data.

More Information
  • Jihee Kim, Korea Advanced Institute of Science and Technology

  • Time
    Joan Robinson Room DIW Berlin Room 3.3.002a Mohrenstraße 58 10117 Berlin
    at DIW Berlin
    Tel.: +49 30 89789 486
    Tel.: +49 30 89789 409