Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Macro Perspectives on Income Inequality
Journal of Economic Perspectives
vol. 39,
no. 2, Spring 2025
(pp. 127–48)
(Complimentary)
Abstract
Inequality has become a defining challenge for modern economies and a central focus of economic research over the past two decades. I begin by revisiting the foundations of income measurement, showing that standard definitions—taxable income, factor income, and Haig-Simons income—suffer from important conceptual limitations. I contrast these income measures with the ideal notion of income from a welfare perspective—Hicksian income—which captures an individual's ability to consume or save for future consumption. I then examine the drivers of rising top income inequality, with particular attention to the surge in entrepreneurial incomes. I highlight three key forces behind this phenomenon: higher returns on capital (technological factors), lower external financing costs (financial factors), and a lighter tax burden on business owners (fiscal factors).Citation
Gomez, Matthieu. 2025. "Macro Perspectives on Income Inequality." Journal of Economic Perspectives 39 (2): 127–48. DOI: 10.1257/jep.20241435Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- E21 Macroeconomics: Consumption; Saving; Wealth
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- I31 General Welfare; Well-Being
- L26 Entrepreneurship