Income distribution dynamics in the Netherlands in the 20th century: long-run developments and cyclical properties

This paper contributes to the evidence on the distribution of income in the Netherlands by constructing decile and quintile income shares for gross- and for disposable income covering almost the entire twentieth century. It suggests some interpretations of the general trends, while the cyclical properties of the Dutch income distribution are empirically investigated through time-series analysis.

It shows that income inequality experienced a marked decrease over the period 1914 -1975, but remained stable ever since. Since the observed dynamics are notably different between gross and disposable income, taxation and redistribution played an influential role in determining the income distribution. More unemployment is associated with more income inequality in gross income, but this association vanishes when the distribution of disposable income is concerned. Actual inflation does not have a strong effect on the size distribution of gross or disposable income, but speculation that a transitory increase in inflation reduces the income inequality seems justified (cyclical economic prosperity being pro-poor). On the other hand, regression on moving averages of unemployment and inflation showed that longer periods of high inflation and high unemployment increase the income inequality.