Income inequality in historial perspective. Portugal (1890‐2006)

This thesis aims to provide a complete picture on the long term evolution of economic inequality in Portugal. Indeed, Portugal is today one of the most unequal European countries and in this thesis we look at the historical roots of this phenomenon. Last decades, economic historians have provided a wide variety of indexes to estimate the long term evolution of income inequality. In this thesis we estimate all those indexes of inequality proposed by the literature. More concretely, we provide long term series on the evolution of top income and wealth shares, wage inequality, personal income inequality, functional income distribution, the Williamson index, the Extraction ratio, Economic polarization, Welfare and Regional inequality. Wage inequality in Portugal followed an N-curve, increasing until the late 1950s to decline until the 1980, when it turned to increase again. The Portuguese experience fits to the international pattern since the 1950s onwards. The Portuguese case also fits to the Extended Kuznets Curve hypothesis, according to which, wage inequality may follow an N-curve during the transition from an agrarian to a post-industrial society. Top income shares decreased until the 1980 to increase intensively thereafter following the international pattern, and specially the Anglo-Saxon countries experience. Although Leigh (2007) stated that top income shares were a good proxy of income inequality, the Portuguese case shows that this relation may not always hold. In this sense, during Portuguese industrialization top income shares decreased continuously whereas income inequality followed an inverted U-curve, which fits the predictions made by the well-known paper by Kuznets (1955). All approaches to inequality are relevant although this finding shows that they are not equivalent and may evolve in opposite directions. Personal income inequality increased intensively during the first half of the Salazar regime and remained in high levels until the end of the dictatorship. It fell dramatically during the Portuguese revolution of the 1970s and it turned to increase thereafter. The Extraction ratio, which measures the capacity of the economic elites to gather the surplus of an economy also increased intensively during the first half of the dictatorship, clearly defining this regime as deeply regressive in distributional terms. It decreased intensively after the 1950s due to rapid economic growth and turned to increase during the democratic period. The global balance is striking because this index uses to decline in the long term. In Portugal, however, the ER was higher in 2006 than in the 1920s. Finally, this thesis also provides the first long term estimates of regional pc GDP for Portugal since 1890 onwards. Regional inequality increased until the 1970s to decrease afterwards. Increasing regional inequality was due to a long term process of regional specialization, whereas the declining trend was associated to the industrialization of the more backward Portuguese regions. During the period analysed, economic activity concentrated intensively on the Atlantic Coastal regions whereas the inner (and overall northern) regions fell behind. To conclude, Portuguese fast economic growth over the twentieth century should be re-evaluated from the social point of view if we look inside the black box of income per capita. This thesis has enlightened this black box and the vision is rather negative. The fruits of economic growth have not trickled down to most of the population during most of the period studied. As a result, most of the Portuguese have been largely excluded from the growing prosperity of the country.