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Inequality Trends in Sweden 1978-2004
Stockholm School of Economics Stockholm, Sweden.
CEPR, United Kingdom; Stockholm School of Economics Stockholm, Sweden.
2010 (English)In: Review of Economic Dynamics, ISSN 1094-2025, Vol. 13, no 1, 179-208 p.Article in journal (Refereed) Published
Abstract [en]

We document a clear increase in Swedish earnings inequality in the early 1990s, and

that much of this increase was generated by movements in and out of the labor market.

Inequality in disposable income and earnings net of taxes and transfers also increased,

but much less than the increased inequality in pre-government earnings. These di¤er-

ent developments are most likely explained by the generous Swedish welfare system.

Consistent with these observations, we see no clear trend in consumption inequality.

We also estimate stochastic processes for household earnings. A simple random-walk

process captures much of the life-cycle dynamics. But we .nd clear evidence that the

true earnings process is not a random walk. We demonstrate that some estimation

methods result in severe upward bias in the estimated volatility of permanent shocks

if serial correlation in temporary shocks is ignored.

Our estimation results show that the increase in earnings inequality is almost entirely

driven by an increase in



earnings inequality. Moreover, this increase was

mostly generated by an increased volatility of persistent shocks.

Place, publisher, year, edition, pages
2010. Vol. 13, no 1, 179-208 p.
Keyword [en]
Income inequality, consumption inequality, stochastic earnings process
National Category
URN: urn:nbn:se:su:diva-53270DOI: 10.1016/ diva2:390323
Available from: 2011-01-21 Created: 2011-01-21 Last updated: 2015-09-03Bibliographically approved

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