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

  • Richard V. Burkhauser

    (Cornell University)

  • Shuaizhang Feng

    (Princeton University and Shanghai University of Finance and Economics)

  • Stephen P. Jenkins

    ()

    (University of Essex)

  • Jeff Larrimore

    (Cornell University)

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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File URL: http://www.ecineq.org/milano/WP/ECINEQ2009-139.pdf
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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 139.

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Length: 34 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2009-139
Contact details of provider: Web page: http://www.ecineq.org
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  1. 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.
  2. Daniel Feenberg & James Poterba, 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Papers 4229, National Bureau of Economic Research, Inc.
  3. 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.
  4. Daniel S. Hamermesh & Stephen A. Woodbury, 1990. "Taxes, Fringe Benefits and Faculty," NBER Working Papers 3455, National Bureau of Economic Research, Inc.
  5. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
  6. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality In The United States, 1913-1998," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 1-39, February.
  7. Austan Goolsbee, 1997. "What Happens When You Tax the Rich? Evidence from Executive Compensation," NBER Working Papers 6333, National Bureau of Economic Research, Inc.
  8. 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.
  9. Sivadasan, Jagadeesh & Slemrod, Joel, 2008. "Tax law changes, income-shifting and measured wage inequality: Evidence from India," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2199-2224, October.
  10. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P. & Larrimore, Jeff, 2008. "Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring," ISER Working Paper Series 2008-25, Institute for Social and Economic Research.
  11. A.B. Atkinson & Andrew Leigh, 2006. "The Distribution of Top Incomes in Australia," CEPR Discussion Papers 514, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  12. Edward N. Wolff, 1998. "Recent Trends in the Size Distribution of Household Wealth," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 131-150, Summer.
  13. 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.
  14. Stephen Jenkins & Richard Burkhauser & Shuaizhang Feng & Jeff Larrimore, 2009. "Measuring Inequality Using Censored Data: A Multiple Imputation Approach," Working Papers 09-05, Center for Economic Studies, U.S. Census Bureau.
  15. Andrew Leigh, 2007. "How Closely Do Top Income Shares Track Other Measures of Inequality?," CEPR Discussion Papers 562, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  16. Edward Wolff & Ajit Zacharias, 2009. "Household wealth and the measurement of economic well-being in the United States," Journal of Economic Inequality, Springer, vol. 7(2), pages 83-115, June.
  17. 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.
  18. 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.
  19. 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.
  20. A. B. Atkinson, 2005. "Top incomes in the UK over the 20th century," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 168(2), pages 325-343.
  21. Andrew Christie & Sarah Moritz, 2007. "Australia," Chapters, in: Innovation Without Patents, chapter 6 Edward Elgar.
  22. 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.
  23. 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.
  24. 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.
  25. 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.
  26. 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.
  27. Thomas Piketty, 2003. "Income Inequality in France, 1901-1998," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1004-1042, October.
  28. 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.
  29. 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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