Trends and structural determinants of income inequality. An overview

The paper is structured as follows. In section 2 we clarify the concept of inequality used in the paper, pointing out the various steps that contribute to shape inequality in disposable income. Next, in sections 3 and 4 we present data about trends in disposable income and market income inequality in developed countries, respectively. We then focus on the role played by redistribution, also presenting some caveats about the interpretation of the inequality reducing effect of taxes and transfers (section 5). Given that we will argue that the bulk of inequality emerges in the labour market, we also show data about earnings inequality (section 6). Afterwards, we discuss, according to findings of the most recent economic literature, the usual drivers of current trends of inequality suggested by the economic literature, i.e., technical progress and globalization (section 7) and the role of further drivers highlighted by the literature, e.g., financialization, deregulation of labour market institutions, welfare state retrenchment and the weakening of fiscal progressivity (section 8). Finally, we present a brief assessment of various predistributive and redistributive policies to deal with rising inequalities and conclude with some open questions for the economic policy debate (section 9).