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Measuring top incomes using tax record data: a cautionary tale from Australia

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  • Richard Burkhauser

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  • Markus Hahn

    ()

  • Roger Wilkins

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Abstract

Atkinson et al. (J. Econ. Lit. 49( 1):3–71, 2011) survey an important new literature using income-tax-based data to measure the share of income held by top income groups. But changes in tax legislation that expand the tax base to include income sources (e.g. capital gains, dividends, etc.) disproportionately held by these groups will conflate such an expansion with an increase in the share of income they hold. We provide a cautionary tale from Australia of how comprehensive tax reform legislation in 1985 substantially altered Australian top income series, especially those that do not separate taxable realized capital gains from other taxable income. Drawing on the Household, Income and Labour Dynamics in Australia (HILDA) Survey we then estimate the size and distribution (across income groups) of taxable realized capital gains in 2006 and 2009, and compare these results with those using accrued capital gains, finding substantially different distributions. More importantly, we find substantial differences across our measures in how capital gains changed between 2006 and 2009. Our results suggest that yearly taxable realized capital gains, often included in studies of top incomes, might be a poor proxy for the theoretically more appropriate yearly accrued capital gains. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Richard Burkhauser & Markus Hahn & Roger Wilkins, 2015. "Measuring top incomes using tax record data: a cautionary tale from Australia," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(2), pages 181-205, June.
  • Handle: RePEc:kap:jecinq:v:13:y:2015:i:2:p:181-205
    DOI: 10.1007/s10888-014-9281-z
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    References listed on IDEAS

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    1. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    2. Barthold, Thomas A., 1993. "How Should We Measure Distribution?," National Tax Journal, National Tax Association, vol. 46(3), pages 291-99, September.
    3. Auerbach, Alan J., 1989. "Capital Gains Taxation and Tax Reform," National Tax Journal, National Tax Association, vol. 42(3), pages 391-401, September.
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    5. Aaberge, Rolf, et al, 2000. " Unemployment Shocks and Income Distribution: How Did the Nordic Countries Fare during Their Crises?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 77-99, March.
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    7. Auerbach, Alan J., 1989. "Capital Gains Taxation and Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(3), pages 391-401, September.
    8. 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.
    9. Jesper Roine & Daniel Waldenström, 2011. "Common Trends and Shocks to Top Incomes: A Structural Breaks Approach," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 832-846, August.
    10. Burkhauser, Richard V. & Larrimore, Jeff & Simon, Kosali I., 2012. "A "Second Opinion" on the Economic Health of the American Middle Class," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 7-32, March.
    11. Joel Slemrod, 1996. "High-Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response," NBER Chapters,in: Empirical Foundations of Household Taxation, pages 169-192 National Bureau of Economic Research, Inc.
    12. James M. Poterba, 1993. "Tax Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number pote93-1, July.
    13. Anthony B. Atkinson & Andrew Leigh, 2007. "The Distribution of Top Incomes in Australia," The Economic Record, The Economic Society of Australia, vol. 83(262), pages 247-261, September.
    14. Salvatore Morelli & Timothy Smeeding & Jeffrey Thompson, 2014. "Post-1970 Trends in Within-Country Inequality and Poverty: Rich and Middle Income Countries," CSEF Working Papers 356, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    15. Mark Wooden & Nicole Watson, 2007. "The HILDA Survey and its Contribution to Economic and Social Research (So Far)," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 208-231, June.
    16. Barthold, Thomas A., 1993. "How Should We Measure Distribution?," National Tax Journal, National Tax Association;National Tax Journal, vol. 46(3), pages 291-299, September.
    17. A. B. Atkinson & Andrew Leigh, 2008. "Top Incomes In New Zealand 1921-2005: Understanding The Effects Of Marginal Tax Rates, Migration Threat, And The Macroeconomy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 54(2), pages 149-165, June.
    18. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
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    Cited by:

    1. Raymundo M. Campos-Vazquez & Emmanuel Chavez & Gerardo Esquivel, 2017. "Growth is (really) good for the (really) rich," The World Economy, Wiley Blackwell, vol. 40(12), pages 2639-2675, December.
    2. Alstadsaeter, Annette & Jacob, Martin & Kopczuk, Wojciech & Telle, Kjetil, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from Norway," CEPR Discussion Papers 11671, C.E.P.R. Discussion Papers.
    3. repec:bla:ausecr:v:49:y:2016:i:4:p:389-412 is not listed on IDEAS
    4. Salvatore Morelli & Timothy Smeeding & Jeffrey Thompson, 2014. "Post-1970 Trends in Within-Country Inequality and Poverty: Rich and Middle Income Countries," CSEF Working Papers 356, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    5. repec:eee:ecmode:v:65:y:2017:i:c:p:119-128 is not listed on IDEAS
    6. Richard V. Burkhauser & Markus H. Hahn & Roger Wilkins, 2016. "Top Incomes and Inequality in Australia: Reconciling Recent Estimates from Household Survey and Tax Return Data," Melbourne Institute Working Paper Series wp2016n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    7. Ravaska Terhi, 2018. "Top incomes and income dynamics from a gender perspective : Evidence from Finland 1995-2012," Working Papers 1822, University of Tampere, School of Management, Economics.

    More about this item

    Keywords

    Income inequality; Personal income; Tax-based data; Top incomes; D3; H2;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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