Capital income and income inequality in Spain, 1980-2020

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Capital income and income inequality in Spain, 1980-2020

Miguel Artola Blanco, Carlos III University of Madrid; Clara Martínez-Toledano, Imperial College London; Alice Sodano, Paris School of Economics;
Project selected in the Call to support research projects on social inequality (LL2020_5)

Income inequality has grown steadily in Spain over the past two decades. This paper uses a new methodology to attribute the total national income to adult residents in Spain. The national income items that have increased most are rents and retained earnings of firms. Given that the latter form of income is concentrated among the richest groups, income inequality among individuals has increased. Similarly, income dispersion across age groups has been accentuated by higher unemployment and lower wages among younger cohorts. These trends are some of the reasons why Spain has much higher levels of pre-tax income inequality than the European average.
Key points
  • 1
       The proportion of capital income has increased by 6 percentage points in Spain since 2006. Rising rental income and corporate profits account for most of this trend. A growing share of capital income is not declared for personal income tax (IRPF) purposes.
  • 2
       The increase in capital income predominantly favours higher-income households, thereby increasing levels of inequality.
  • 3
       The share of national income of the richest 1% of the population is at record levels. This group accounted for 18% of national income in 2018, approximately three points more than in the first decade of the century. The bulk of this increase is due to the rise of capital income.
  • 4
       Spain has high levels of inequality compared to other developed economies. The top 1% of income earners receives 2 percentage points more of national income than in other countries with similar estimates.
  • 5
       Inequality by age group has become more pronounced. Labour incomes fell most among young people during the 2008 crisis. Furthermore, strong inequality when it comes to distributing capital income has been compounded, as these cohorts have been less able to save and diversify their wealth.
Top 1% incomes lead rising inequality
Top 1% incomes lead rising inequality

Top percentile income by type of income as a percentage of national income, Spain, 1984-2018.

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