Income Inequality and Work Effort: Revisiting the Veblen Effect

We investigatethe relationship between income inequality and work effort using a dataset comprising 24high-income OECD countries over the period 1990-2015. Three alternative measures of income inequality are considered – the Gini coefficient, the ratio between the 90th percentile and median income, and the ratio between the median and 10th percentile income. The evidence obtained suggests that income inequality plays an instrumental role in driving work effort, hence confirming the existence of a ‘Veblen effect’across all quantiles considered. Keywords - Income inequality, Work effort, Mixed effects, Panel quantile JEL codes: O15; C23