INTRODUCTION

In their review of income inequality in richer and OECD countries, Brandolini and Smeeding (2009) concluded that “attempts to model and understand causal factors and explanations for differences in level and trend in income inequality across nations is the ultimate challenge to which researchers on inequality should all aspire” (p.

The chapter aims to provide a thorough survey of what international (i.e., cross­country) studies can tell us about the drivers and underlying causes of income inequality with regard to levels and, in particular, trends. The survey intends to be interdisciplinary, focusing on economics literature in particular but also on relevant evidence from soci­ology and political science.^[253] While the overview intends to be comprehensive, some important research decisions limit its scope with regard to coverage and focus:

• The geographical coverage of the chapter is limited to the joint set of OECD and EU countries. Driving factors of inequality in emerging and developing countries and issues of world development are covered by Chapters 9, 11 and 20 in this volume.

• The chapter provides an update of existing reviews of literature with mostly recent studies, focusing largely on cross-country analyses that became available since the turn of the century.

• The chapter basically provides a meta-analysis based on review of the relevant literature. It does not produce a new data analysis within the frame of this survey. However, the chapter presents and provides a numerical analysis of the key findings of the literature.

• The focus of the chapter is on inequality of outcomes rather than inequality of oppor­tunity. The analysis of the latter is provided in Chapter 4.

• Research results on determinants of poverty are not reviewed here.

• When dealing with “inequality,” the emphasis is on inequality of household income as much as possible, following the main focus of the Handbook. Given the scope of the empirical literature at hand, results of the determinants of the distribution of income subaggregates such as labor earnings also are reported. The determinants of the distri­bution of individual wages are, however, discussed in Chapter 18.

• The chapter focuses on the size distribution of personal incomes, leaving the vast range of literature on functional income distribution to other studies.

• While there is a trade-off between country coverage (N) and the length of the time series (T) in an analysis (given the limitations of data for large cross-country data sets for a long time series), the chapter draws practical boundaries here. A large cross­section of countries is relevant, even if only one or a few points in time are covered. On the other hand, analyses of only a few countries but for a long time series may be relevant for the review. The issue of this trade-off, however, is discussed further later in the chapter.

• The chapter reviews findings on the driving factors of inequality under several aspects: cross sections of within-country inequalities, quasi panels of countries and cross­country comparisons of longitudinal surveys (the data background of the studies is dis­cussed in Section 19.3.2, covering the comprehensive data background of the income distribution literature). We do not include studies of cross-country differentials such as gross domestic product (GDP) convergence.

The structure of the chapter follows a broad classification of research questions of the literature. The chapter ends with a concluding section that attempts to summarize and classify the wealth of findings from the literature and to provide a critical assessment of the findings.

When selecting the empirical studies to be reviewed, we considered four elements as cru­cial: (i) the analyses had to show empirical results on income (or at least earnings) inequality; (ii) they had to cover a multiple of countries; (iii) they had to be at least multivariate; and (iv) their coverage had to relate to the joint set of OECD and EU countries. This led, obvi­ously, to painful omissions of many excellent reports of driving factors of inequality.

19.2.