Working Paper No. 1106

Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang

Published: January 28, 2016Pages: 71Keywords: Income inequality; Synthetic control method; InstitutionsJEL-codes: D31; G28; H24; J30; N20

Does Financial Deregulation Boost Top Incomes? Evidence from the Big Bang Julia Tanndal and Daniel Waldenström

This study estimates the impact of financial deregulation on top income shares. Using the novel econometric method of constructing synthetic control groups, we show that the "Big Bang"-deregulations in the United Kingdom in 1986 and Japan 1997–1999 increased the share of pre-tax incomes going to top earners by over 20 percent in the U.K. and over 10 percent in Japan.

The effect is strongest in the top five percentiles in the U.K. whereas it is mainly driven by the lower part of the top decile in Japan. The findings are robust to placebo tests, alternative ways to construct synthetic controls and scrutiny of post-treatment trends. Higher earnings among financial sector employees appear to be an important mechanism behind this result.

Daniel Waldenström


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Sick of Inequality?

An Introduction to the Relationship between Inequality and Health

Sick of Inequality.jpg

In this book Andreas Bergh, Therese Nilsson, IFN and Lund University, and Daniel Waldenström, IFN and Paris School of Economics, France, review the latest research on the relationship between inequality and health. What does inequality mean for our health? Does increasing income inequality affect outcomes such as obesity, life expectancy and subjective well-being?


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