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Innovation and Top Income Inequality


Aghion, Philippe; Akcigit, Ufuk; Bergeaud, Antonin; Blundell, Richard; Hémous, David (2015). Innovation and Top Income Inequality. INSEAD Working Paper 2015/50/E, University of Zurich.

Abstract

In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities.

Abstract

In this paper we use cross-state panel data to show that top income inequality is (at least partly) driven by innovation. We first establish a positive and significant correlation between various measures of innovativeness and top income inequality in cross-state panel regressions. Two distinct instrumentation strategies suggest that this correlation (partly) reflects a causality from innovativeness to top income inequality, and the effect is significant: for example, when measured by the number of patent per capita, innovativeness accounts on average across US states for around 17% of the total increase in the top 1% income share between 1975 and 2010. Finally, we show that innovation does not increase broader measures of inequality which do not focus on top incomes, and that innovation is positively correlated with social mobility, but less so in states with more intense lobbying activities.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:O30, O31, O33, O34, O40, O43, O47, D63, J14, J15
Uncontrolled Keywords:top income, inequality, innovation, patenting, citations, social mobility, incumbents, entrant.
Language:English
Date:July 2015
Deposited On:19 Feb 2016 15:26
Last Modified:08 Dec 2017 19:06
Series Name:INSEAD Working Paper

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