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The Distribution of Top Incomes in Five Anglo-Saxon Countries over the Twentieth Century

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  • A B Atkinson
  • Andrew Leigh

Abstract

Taxation data have been used to create long-run series for the distribution of top incomes in quite a number of countries. Most of these studies have focused on the national experience of individual countries, but we can also learn from cross-country comparisons. Comparative analysis is therefore the next stage in the research program. At the same time, we know from other fields that there are dangers in simply pooling all available time series, without regard to the specific nature of data and reality. In this paper, we therefore adopt an intermediate approach, taking five Anglo- Saxon countries that have relatively similar backgrounds and tax systems: Australia, Canada, New Zealand, the UK, and the US. The first part of the paper tackles the challenge of comparability of income-tax based estimates across countries and across time. The second part summarizes the evidence about top income shares. Across these five countries, the shares of the very richest exhibit a strikingly similar pattern, falling in the three decades after World War II, before rising sharply from the mid-1970s onwards. The share of the top 1 percent is highly correlated across Anglo-Saxon countries, more so than the share of the next 4 percent. The third part of the paper looks at the relationship between taxes and top income shares. Controlling for country and year fixed effects, we find that a reduction in the marginal tax rate on wage income is associated with an increase in the share of the top percentile group. Likewise, a fall in the marginal tax rate on investment income (based on a lagged moving average) is associated with a rise in the share of the top percentile group.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 640.

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Date of creation: Apr 2010
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Handle: RePEc:auu:dpaper:640

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Keywords: inequality; taxation; Australia; Canada; New Zealand; United Kingdom; United States;

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References

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Cited by:
  1. Heshmati, Almas & Kim, Jungsuk, 2014. "A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth," IZA Discussion Papers 8119, Institute for the Study of Labor (IZA).
  2. Andrews, Daniel & Jencks, Christopher & Leigh, Andrew, 2009. "Do Rising Top Incomes Lift All Boats?," Scholarly Articles 4415903, Harvard Kennedy School of Government.
  3. Stefanie Stantcheva & Emmanuel Saez & Thomas Piketty, 2012. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," 2012 Meeting Papers 78, Society for Economic Dynamics.
  4. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2007. "The Long-run Determinants of Inequality: What Can We Learn from Top Income Data?," Working Paper Series 721, Research Institute of Industrial Economics, revised 30 Apr 2008.
  5. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
  6. Francisco M. Gonzalez & Jean-Francois Wen, 2013. "A Theory of Top Income Taxation and Social Insurance," Working Papers 1306, University of Waterloo, Department of Economics, revised Oct 2013.

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