Capitalist systems and income inequality*

The paper investigates the relationship between compositional inequality (how the shares of capital and labor income vary along income distribution) and inter-personal income inequality. Using a new methodology and data from 47 countries covering the period 1995-2018, we show that higher compositional inequality is associated with higher inter-personal inequality. This is clearly shown by Latin American countries and India. Nordic countries are exceptional because they combine high compositional inequality with low inter-personal inequality. Their exceptionalism is attenuated when pension income received from largely government-mandated accumulated savings is added to capital income. The analysis shows the theoretical possibility of societies where low compositional inequality may be combined with high income inequality. Currently, China and the United States come closest to that position.