Working Paper: CEPR ID: DP4137
Authors: Abhijit Banerjee; Thomas Piketty
Abstract: This Paper presents data on the evolution of top incomes and wages from 1956 to 2000 in India using individual tax returns data. Our data shows that the shares of the top 0.01%, the top 0.1% and the top 1% in total income shrank very substantially until the early-to-mid 1980s, but then went back up again, so that today these shares are only slightly below what they were in 1956. We argue that this U-shaped pattern is broadly consistent with the evolution of economic policy in India - the period from 1956 to the early-to-mid 1980s was also the period of ?socialist? policies in India, while the subsequent period, starting with the rise of Rajiv Gandhi, saw a gradual shift towards more pro-business policies. Although the initial share of this group was small, the fact that the rich were getting richer had a non-trivial impact on the overall income distribution. In particular, its impact is not large enough to fully explain the gap between average consumption growth in survey-based NSS data and the National accounts-based NAS data, but is sufficiently large to explain a non-negligible part of it (between 20% and 40%).
Keywords: income distribution
JEL Codes: D63; N34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic policies (E64) | income distribution (D31) |
| Socialist policies (P35) | shares of the top 0.01%, 0.1%, and 1% of total income (D33) |
| Pro-business policies (L53) | recovery of the top income shares (E25) |
| Growth of top incomes (D31) | discrepancies in consumption growth rates (F62) |