Inequality plays a central role in how economies function, yet it has often been treated as a secondary concern in economic research. At a recent seminar hosted by the Institute for Futures Studies, Jesper Roine, Professor of Economics and Deputy Director of the Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics, argued that this needs to change.

Rather than seeing inequality as mainly a political or ethical issue, Roine emphasized that it should be studied as a core economic factor. How income and wealth are distributed shapes incentives, participation, and ultimately how well markets work.

“For a long time, economists have been hesitant to focus on distribution,” Roine said. “But inequality is not separate from growth – it is part of how the economy actually functions.”

This challenges a long-standing view in economics that prioritizes overall growth over how resources are shared. But it is far from obvious that inequality is always good for growth, if anything empirical work would suggest the opposite to be true. “Asking whether inequality in general is good or bad for growth is the wrong question. It seems much more important to think of what we tax and how taxes are used.”

A different picture of inequality in Sweden

Roine used Sweden as a case to show the importance of the potentially differing role of the many components that make up overall inequality. While disposable income inequality has risen since the 1990s, this is not true for all of its components. Labour income inequality in Sweden has remained relatively stable over recent decades. Instead, rising inequality is largely driven by capital income – such as returns on investments – and by the increasing importance of wealth relative to income.

This is indicative of an increasing role for wealth in understanding overall inequality. Since the 1990s the value of aggregate wealth over national income has increased sharply. This means that even if the distribution of wealth itself does not change dramatically, its growing role in the economy can still widen overall inequality. As capital becomes more important, differences in who owns assets matter more for economic outcomes.

“The key shift is not just who has wealth, but how much wealth matters in relation to income,” Roine explained.

This in turn makes having good data on the distribution of wealth increasingly important. Such information is important for getting facts right.

Why inequality matters for the future

Ignoring inequality can have broader consequences beyond economics. Roine warned that large wealth gaps can lead to political imbalances, where economic elites gain disproportionate influence, or to public frustration that fuels support for harmful policies.

At the same time, technological changes may amplify these dynamics. The rise of large digital platforms and artificial intelligence could concentrate market power further, especially when a few actors control key flows of information.

“If a small number of players control how buyers and sellers meet, they can capture a large share of the value,” Roine noted.

The discussion highlights a shift in how economists approach inequality – from a side issue to a central part of understanding modern economies. For policymakers, businesses, and citizens, the message is clear: how resources are distributed is not just about fairness, but about how well the economy works.

Contact
Jesper Roine, Deputy Dirctor, Stockholm Institute of Transition Economics (SITE); Adjunct Professor of Economics, Stockholm School of Economics
Email: jesper.roine@hhs.se