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Deconstructing Income and Income Inequality Measures: A Crosswalk from Market Income to Comprehensive Income

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  • Philip Armour
  • Richard V. Burkhauser
  • Jeff Larrimore

Abstract

Recent research on levels and trends in the United States in income inequality vary substantially in how they measure income. We show the sensitivity of alternative income measures in capturing income trends using a unified data set. Focusing solely on market income or including realized taxable capital gains based on IRS tax return data in more comprehensive household income measures will dramatically increase inequality growth compared to capital gains measures more in keeping with Haig-Simons principles. Using a measure of yearly accrued capital gains dramatically reduces observed growth in income inequality across the distribution, but also equalizes income growth since 1989.

Suggested Citation

  • Philip Armour & Richard V. Burkhauser & Jeff Larrimore, 2013. "Deconstructing Income and Income Inequality Measures: A Crosswalk from Market Income to Comprehensive Income," American Economic Review, American Economic Association, vol. 103(3), pages 173-177, May.
  • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:173-77
    Note: DOI: 10.1257/aer.103.3.173
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    References listed on IDEAS

    as
    1. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    2. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2009. "Recent trends in top income shares in the USA: Reconciling estimates from March CPS and IRS tax return data," Working Papers 139, ECINEQ, Society for the Study of Economic Inequality.
    3. Congressional Budget Office, 2012. "The Distribution of Household Income and Federal Taxes, 2008 and 2009," Reports 43373, Congressional Budget Office.
    4. Herwig Immervoll & Andreas Peichl & Konstantinos Tatsiramos (ed.), 2011. "Who Loses in the Downturn? Economic Crisis, Employment and Income Distribution," Research in Labor Economics, Emerald Publishing Ltd, volume 32, number rlec.2011.32, December.
    5. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    6. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2012. "Recent Trends in Top Income Shares in the United States: Reconciling Estimates from March CPS and IRS Tax Return Data," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 371-388, May.
    7. Congressional Budget Office, 2012. "The Distribution of Household Income and Federal Taxes, 2008 and 2009," Reports 43373, Congressional Budget Office.
    8. Timothy M. Smeeding & Jeffrey P. Thompson, 2011. "Recent Trends in Income Inequality," Research in Labor Economics, in: Herwig Immervoll & Andreas Peichl & Konstantinos Tatsiramos (ed.), Who Loses in the Downturn? Economic Crisis, Employment and Income Distribution, volume 32, pages 1-50, Emerald Publishing Ltd.
    9. Congressional Budget Office, 2012. "The Distribution of Household Income and Federal Taxes, 2008 and 2009," Reports 43373, Congressional Budget Office.
    10. Congressional Budget Office, 2011. "Trends in the Distribution of Household Income Between 1979 and 2007," Reports 42729, Congressional Budget Office.
    11. Congressional Budget Office, 2012. "The Distribution of Household Income and Federal Taxes, 2008 and 2009," Reports 43373, Congressional Budget Office.
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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