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Recent trends in top income shares in the USA: reconciling estimates from March CPS and IRS tax return data

  • Burkhauser, Richard V.
  • Feng, Shuaizhang
  • Jenkins, Stephen P.
  • Larrimore, Jeff

Although the majority of research on US income inequality trends is based on public-use March CPS data, a new wave of research using IRS tax return data reports substantially higher levels of inequality and faster growing trends. We show that these apparently inconsistent estimates are largely reconciled if the inequality measure and the income distribution are defined in the same way. Using internal CPS data for 1967–2006, we closely match IRS data-based estimates of top income shares reported by Piketty and Saez (2003). Our results imply that any inequality increases since 1993 are concentrated among the top 1 percent of the distribution.

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Paper provided by Institute for Social and Economic Research in its series ISER Working Paper Series with number 2009-27.

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Date of creation: 14 Sep 2009
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Publication status: published
Handle: RePEc:ese:iserwp:2009-27
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  1. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2011. "Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring," Journal of Economic Inequality, Springer, vol. 9(3), pages 393-415, September.
  2. Bishop, John A & Chiou, Jong-Rong & Formby, John P, 1994. "Truncation Bias and the Ordinal Evaluation of Income Inequality," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(1), pages 123-27, January.
  3. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," NBER Working Papers 11955, National Bureau of Economic Research, Inc.
  4. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins, 2007. "Using the P90/P10 Index to Measure US Inequality Trends with Current Population Survey Data: A View from Inside the Census Bureau Vaults," Discussion Papers of DIW Berlin 699, DIW Berlin, German Institute for Economic Research.
  5. Edward N. Wolff & Ajit Zacharias, 2006. "Household Wealth and the Measurement of Economic Well-Being in the United States," Economics Working Paper Archive wp_447, Levy Economics Institute.
  6. Jagadeesh Sivadasan & Joel Slemrod, 2006. "Tax Law Changes, Income Shifting and Measured Wage Inequality: Evidence from India," NBER Working Papers 12240, National Bureau of Economic Research, Inc.
  7. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
  8. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
  9. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
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  11. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, vol. 95(3), pages 831-849, June.
  12. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  13. Andrew Leigh, 2007. "How Closely Do Top Income Shares Track Other Measures of Inequality?," Economic Journal, Royal Economic Society, vol. 117(524), pages F619-F633, November.
  14. Richard V. Burkhauser & Kenneth A. Couch & Andrew Houtenville & Ludmila Rovba, 2004. "Income Inequality in the 1990s: Re-Forging a Lost Relationship?," Working papers 2004-11, University of Connecticut, Department of Economics.
  15. Stephen P. Jenkins, 2009. "Distributionally-Sensitive Inequality Indices And The Gb2 Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 392-398, 06.
  16. Jenkins, Stephen P. & Burkhauser, Richard V. & Feng, Shuaizhang & Larrimore, Jeff, 2009. "Measuring inequality using censored data: a multiple imputation approach," ISER Working Paper Series 2009-04, Institute for Social and Economic Research.
  17. Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
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  19. Feenberg, D.R. & Poterba, J.M., 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," Working papers 92-16, Massachusetts Institute of Technology (MIT), Department of Economics.
  20. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
  21. 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, 09.
  22. Joel Slemrod, 1995. "High-Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response," NBER Working Papers 5218, National Bureau of Economic Research, Inc.
  23. Feng, Shuaizhang & Burkhauser, Richard V. & Butler, J.S., 2006. "Levels and Long-Term Trends in Earnings Inequality: Overcoming Current Population Survey Censoring Problems Using the GB2 Distribution," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 57-62, January.
  24. Mary C. Daly & Robert G. Valletta, 2006. "Inequality and Poverty in United States: The Effects of Rising Dispersion of Men's Earnings and Changing Family Behaviour," Economica, London School of Economics and Political Science, vol. 73(289), pages 75-98, 02.
  25. Fabien Dell, 2005. "Top Incomes in Germany and Switzerland Over the Twentieth Century," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 412-421, 04/05.
  26. Andrew Christie & Sarah Moritz, 2007. "Australia," Chapters, in: Innovation Without Patents, chapter 6 Edward Elgar Publishing.
  27. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2009. "From Bottom To Top: The Entire Income Distribution In Germany, 1992-2003," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 303-330, 06.
  28. Fichtenbaum, Rudy & Shahidi, Hushang, 1988. "Truncation Bias and the Measurement of Income Inequality," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(3), pages 335-37, July.
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