The effects of asset prices on income inequality: Redistribution policy does matter

Hyoungjong Kim, Dong Eun Rhee

Research output: Contribution to journalArticlepeer-review

Abstract

Income inequality in some developed countries has been steadily increasing over the past two decades, contrasting Kuznets' hypothesis that income inequality will improve after a certain income level. During that same period, asset prices rose significantly, blamed for increases in inequality. Are rising asset prices really the cause of rising inequality? Using the data of 32 developed countries across 1980–2018, this research empirically reveals that a country's stance toward redistribution significantly determines whether asset prices affect income inequality. The results indicate that an increase in house prices significantly increases income inequality in countries with weak income redistribution policies, while asset prices do not affect income distribution in countries with strong redistribution policies. An improvement in income inequality does not occur spontaneously but requires active government intervention.

Original languageEnglish
Article number105899
JournalEconomic Modelling
Volume113
DOIs
Publication statusPublished - 2022 Aug

Keywords

  • Financial markets
  • Income inequality
  • Redistribution policy

ASJC Scopus subject areas

  • Economics and Econometrics

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