Explaining the equalising effect of panel-income changes

Abstract

Panel-income changes tend to be equalising but existing approaches provide little insight on the nature of this equalising process. I present a new decomposition framework showing explicitly how the equalising effect of panel-income changes depends on the respective size and distribution of panel-income gains and losses. One of the new insights gained from the application to US data for the 1970/2009 period is that most of the equalising effect occurs through income gains rather than income losses even in times of recession.