March 12, 2018
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New paper on the evolution of top income inequality in the Czech Lands, 1898-2015 ( Working Paper 2018/6)

This new paper by Filip Novokmet presents new finding on the long-run dynamics of income inequality in Czech lands, from the end of the 19th century until today.

Top income shares followed a U-shaped evolution in the course of the 20th century. Between 1900 and 1920, the top 1% earned between 14% and 18% of total income. This share dropped dramatically following the two World Wars, reaching a lower bound of approximately 3% at the beginning of the 1960s. Since the end of the 1980s, however, top income inequality has increased sharply, and the richest 1% individuals now receive about 10% of national income. In comparison, this is less than Poland (13.3%) or France (10.8%), but higher than Spain (8.6%) or Denmark (6.4%).

Higher shares in the first half of the 20th century were due to high concentration of capital income at the top of the income distribution, and shocks to top capital incomes were the main force behind the secular fall in top concentration. Communism led to the virtual annihilation of private capital income and the stumbling of top income shares. After residing at very low levels featured by remarkable stability for several decades, top income shares have increased after the fall of communism, as the transition to the market economy saw a rise in both top labour and top capital incomes.

However, in contrast to the pre-communist period, there is a higher prominence of the working rich at the top. This evolution is explained by the continuous interplay of economic and political forces. The Czech Republic is the suggestive example of the critical role played by the interaction between private, public and foreign capital in shaping top income patterns. Except for the socialist period, when the bulk of wealth was in the public ownership, the holders of top capital incomes have disproportionally been foreigners.

Top 1% and top 5-1% income shares in the Czech Republic, 1898-2015