Pathways toward Inclusive Income Growth: A Comparative Decomposition of National Growth Profiles

Despite rising interest in income inequality, scholars remain divided over the mechanisms most amenable to inclusive income growth, how these mechanisms vary across country, and the trade-offs between levels and inclusivity of growth. This study introduces the concept of national growth profiles, the additive contribution of changes in taxes, transfers, composition, and institutions to changes across a country’s income distribution. We apply a novel decomposition framework to measure national growth profiles for nine countries across three welfare regimes from the 1980s to 2010s. Our findings expand upon past research on inclusive growth in four ways. First, we find that changes in demographic and employment composition are weakly associated with the inclusivity of income growth. Second, changes in institutions are the dominant driver of non-inclusive growth, yet contribute to greater increases in inequality in the Nordic countries than in liberal countries. Third, welfare regimes prove of little use in explaining variation in changes in income inequality. Fourth, no inherent trade-off emerges between levels and inclusivity of growth. Conceptually, growth profiles shift focus from analyses of historical variation to ongoing changes in inequality. Empirically, they can be applied broadly to future research on variation in income distributions across place or time.