The Long‐Run History of Income Inequality in Denmark

• Author: Jakob Egholt Søgaard,Anthony B. Atkinson
• DOI: http://doi.org/10.1111/sjoe.12143
• Published date: 01 April 2016
• Date: 01 April 2016

Scand. J. of Economics 118(2), 264–291, 2016

DOI: 10.1111/sjoe.12143

The Long-Run History of Income

Inequality in Denmark∗

Anthony B. Atkinson

Nuffield College, University of Oxford, Oxford OX1 1NF, UK

tony.atkinson@nuffield.ox.ac.uk

Jakob Egholt Søgaard

University of Copenhagen, DK-1353 Copenhagen K, Denmark

jes@econ.ku.dk

Abstract

We use historical publications and micro data from tax returns to construct internationally

comparable estimates of the development in income inequality in Denmark over the last 140

years. The study shows that income inequality and top income shares have declined during

several distinct phases in between periods of stability. Furthermore, the quality of the Danish

data allows us to analyse not only the development in top income shares but also broader

inequality measures such as the Gini coefficient. These analyses show that top income shares

are a good proxy for the underlying development in inequality.

Keywords: Denmark; income distribution; income inequality; taxation; top incomes

JEL classification:D31; H2; J3; N3

I. Introduction

The long-run history of income inequality in Denmark is of considerable

interest. Denmark is often portrayed as a country that has successfully com-

bined economic performance with social safety. Certainly, in today’s terms,

Denmark scores well in league tables of income inequality. In the OECD

2011 report, Divided We Stand: Why Inequality Keeps Rising, Denmark

has one of the lowest Gini coefficients, and in the World Top Incomes

Database (WTID),1the share of the top 1 percent is among the lowest

recorded. This leads naturally to the question whether this has always been

so, or has Denmark in the past brought about a significant reduction in

inequality. If so, when did it take place and how was it achieved?

∗We are most grateful to Rewal Schmidt Sørensen for sharing with us the historical data

that he collected for his study (1989, 1993). His work and data have formed an invaluable

starting point for our research. We thank Facundo Alvaredo and Daniel Waldenstr¨

om for their

help and encouragement, the anonymous referees, and Thomas Piketty, Ingrid Henriksen,

Jesper Roine, Claus Thustrup Kreiner and Peter Schultz-Møller for valuable comments and

suggestions.

1http://www.parisschoolofeconomics.eu/en/expertise-dissemination/wtid-world-top-incomes-

database/

CThe editors of The Scandinavian Journal of Economics 2015.

A. B. Atkinson and J. E. Søgaard 265

With the focus on long-run income inequality, the present paper con-

tributes to the recent literature on top income shares that has emerged since

the studies by Piketty (2001, 2003), Piketty and Saez (2003), and Atkinson

(2005). These studies have been influential in highlighting the dramatic

changes in income inequality across many different countries since the

beginning of the 20th century. Studies of this type have already been con-

ducted on Finland (J¨

antti et al., 2010), Norway (Aaberge and Atkinson,

2010), and Sweden (Roine and Waldenstr¨

om, 2010), and the present paper

thus completes the set of Scandinavian countries.

At the same time, the focus on top income shares stems from the fact

that historical sources on the income distribution in most countries have

primarily covered the top of the distribution, hence making the estimation

of broader measures of inequality such as the Gini coefficient infeasible. In

contrast, the data sources for Denmark extend well down into the income

distribution from almost the beginning of the 20th century and we can –

quite unusually – construct a series covering nearly one hundred years. This

allows us to address two further questions. How well do top income shares

work as proxies for the development in the overall income distribution?

What other parts of the income distribution mirror the changes at the top?

The study on Denmark is aided by the fact that the income tax data pro-

vide a rich historical source, which can be coupled with micro data covering

the entire universe of taxpayers in Denmark available from 1980. There has

long been research based on these tax records. The 1928 textbook, Den

okonomiske fordeling, by Zeuthen, contained analyses of the distribution

in the 1920s. Bjerke (1957, 1965) examined the period 1939–1964, while

later studies included Egmose (1985) covering 1939–1980, Pedersen and

Smith (2000) covering 1981–1996, and the series for top income shares

constructed from micro data for 1980–2005 by Kleven and Schultz (2014).

Finally, a long-run perspective is taken by Sørensen (1989, 1993), whose

study covers 1903–1986. This paper benefits from these earlier investiga-

tions, and seeks to join up the findings for the different subperiods, while

paying strict attention to the comparability of the data over time.

In this respect, the concept of “assessed income” used in many of these

earlier Danish studies represents an obstacle (in effect, it deducts taxes

paid in the previous year). Compared to these earlier studies, a major

contribution of the present paper is to make estimates of the distribution

of taxable income – a concept similar to that employed in other countries.

In doing so, we obtain internationally comparable estimates of income

inequality in Denmark from 1870 to 2010, that is, 140 years spanning two

world wars, and the Great Depression as well as the recent financial crisis.

At the outset, we should emphasize that, as normal when considering time

series from more than a century, the data have limitations. The income tax

data used here arise from an administrative process and reflect both the tax

CThe editors of The Scandinavian Journal of Economics 2015.