Does the stock market affect income distribution? Some empirical evidence for the US

Abstract

What is the relation between the stock market and income distribution? There are many potential links between the two, some of which are associated with the relations of each of these with the rate of economic growth. An empirical analysis set in the framework of the neoclassical growth model shows that the key mechanisms explaining income distribution in the US operate through the labour market rather than through the stock market, even though stock market shocks appear to have some short time relevance for the dynamics of income distribution.

Acknowledgement

We are grateful to G. Nardozzi for comments on a previous version of the article. C. Morana is grateful to Piedmont Region for funding (Ricerca d’Eccellenza No. 21302BAIPSE).

Notes

¹ The literature on the linkage between income distribution and growth has grown rapidly in the recent years. We point the reader to the survey of Bertola (2000) and reference therein.

² Not all the installed capital is quoted. Yet, by assuming a proportional relationship between the log of quoted capital and the log of the replacement cost, the long-run analysis can still be carried out in the proposed framework.

³ For reasons of space we do not provide details concerning the specification of the model, which are available upon request from the authors.

⁴ For reasons of space we do not provide details concerning the methodology followed for the indentification of the common trends model. See for instance Mellander et al . (1992), Warne (1993) and Morana (2003).