Association for Public Policy Analysis & Management

This paper will draw on data from the Luxembourg Income Study (LIS) Database and the newly expanded Luxembourg Wealth Study (LWS) Database to tackle a set of inter-related questions. The first two concern change over time in income distributions; the second two address aspects of inequality after the recent global financial crisis; the final question addresses the US case. 1) It has been widely reported that, since the early 1980s, income inequality has increased in about 2/3 of OECD countries. To what extent, and where, has changing inequality (in both directions) been driven by shifts in the distribution of market income versus changes in redistributive interventions? 2) We hear a lot about “the hollowing out of the middle”. During the last three decades, what exactly has taken place in the middle of the income distribution? What is the general pattern across countries? Has the size of “the middle” – defined by percentage deviations from the median (e.g., 75-125% of the median) – shrunk? Has the real income level of the middle fallen? What is real behind the rhetoric? 3) How do contemporary patterns of income inequality – and the factors shaping current outcomes – differ between high- and middle-income countries? Does income inequality in the BRIC countries, for example, look substantially different from inequality in OECD countries? 4) What do we know about the distribution of wealth across households in high-income countries, after the crisis? To what extent are income and wealth jointly distributed across households? 5) Finally, what can be learned from the US case, often taken as the extreme example of high and rising income inequality? Which public policies are especially consequential in shaping income inequality in the US, both before and after taxes and transfers?