Title_ Income Distribution and the Business Cycle in Germany: A Semiparametric Approach

Author_ Andos JUHÁSZ

Pages 95-136

Abstract_ The question of how the distribution of income isinfluenced by the state of the economy is important for understandingthe economic mechanisms linking micro- and macro-levelvariables. There is no generally applicable theory on how thedistribution of household incomes is influenced by changed macroeconomicconditions. This paper adapts an empirical approach inorder to investigate this relationship by employing a semi-parametricdouble-index model without restrictions on the shape of the linkfunction between indices of household- and macro-level variables. We conclude that the link function is non-trivial and non-additive,meaning that the influence of macroeconomic conditions (i.e.GDP, inflation, government expenditure or unemployment) islikely to vary with household characteristics. The influence foundis small, but in parts significant, drawing a comprehensive pictureof potential link-mechanisms.

Keywords_ Income Distribution, Business Cycle, Double Index Model, Semiparametric Estimation