Drivers of income inequality in OECD countries : testing the Milanovic's TOP hypothesis

Lazović Vuković, Danijela (author), Damijan, Jože (author)

This paper studies the drivers of rising income inequality in OECD countries between 1980 and 2018. By testing Milanovic’s TOP hypothesis in our sample, we measure the extent to which these distributional outcomes have been driven by either technological progress or globalization and the extent to which they have been influenced or mitigated by policy choices. The results of our empirical analysis provide the basis for confirming the TOP hypothesis. We find evidence that a 10 percent increase in trade openness, financial globalization, and technological progress is on average associated with a 0.4 percent, 0.3 percent, and 0.9 percent change in market inequality, respectively. At the same time, policies such as public expenditure on education, employment protection legislation and direct income taxes promote a more equal distribution. Our most notable finding, however, is that policies not only have a direct equalizing effect, but also mitigate the effects of globalization and technological progress on income inequality. The results of our study suggest that there are reasonable alternatives to anti-globalization strategies and that redistributive and labor market policies can be tailored to control inequality in the era of globalization and technology.

• Language: English
• Keywords: income distribution, pay gap, globalization, income inequality, technological progress, policy
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2025
• Number of pages: Str. 416-440
• Numbering: Vol. 74
• PID: 20.500.12556/RUL-168994
• UDC: 331.2
• ISSN on article: 0954-349X
• DOI: 10.1016/j.strueco.2025.04.004
• COBISS.SI-ID: 233496579
• Publication date in RUL: 06.05.2025

Record is a part of a journal

• Title: Structural change and economic dynamics
• Shortened title: Struct. chang. econ. dyn.
• Publisher: Elsevier
• ISSN: 0954-349X
• COBISS.SI-ID: 5096988

Licences

• License: CC BY-NC 4.0, Creative Commons Attribution-NonCommercial 4.0 International
• Link: http://creativecommons.org/licenses/by-nc/4.0/
• Description: A creative commons license that bans commercial use, but the users don’t have to license their derivative works on the same terms.

Secondary language

• Language: Slovenian
• Keywords: razdelitev dohodka, dohodkovna neenakost, globalizacija