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ENTREPRENEURSHIP AND INCOME DISTRIBUTION DYNAMICS: WHY IS THE INCOME SHARE OF TOP INCOME EARNERS ACYCLICAL OVER THE BUSINESS CYCLE?
Author(s) -
Kwark NohSun,
Ma Eunseong
Publication year - 2021
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12489
Subject(s) - business cycle , economics , distribution (mathematics) , income distribution , entrepreneurship , labour economics , demographic economics , macroeconomics , inequality , finance , mathematics , mathematical analysis
In the United States, the income share of the top 5% income group is acyclical over the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, particularly focusing on the top 5% income earners' share, using a heterogeneous agent model featuring a choice to become an entrepreneur. The model economy successfully reproduces the acyclical behavior of the income share of the top 5%. During expansions, relatively more people become entrepreneurs at the top, which offsets the decline in the income share of the high‐income earners from workers' side.