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

Author

Listed:
  • Atkinson, Tony

    (Nuffield College, Oxford)

  • Leigh, Andrew

    (Australian National University)

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.

Suggested Citation

  • Atkinson, Tony & Leigh, Andrew, 2010. "The Distribution of Top Incomes in Five Anglo-Saxon Countries over the Twentieth Century," IZA Discussion Papers 4937, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4937
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    Cited by:

    1. A. B Atkinson & Andrew Leigh, 2013. "The Distribution of Top Incomes in Five Anglo-Saxon Countries Over the Long Run," The Economic Record, The Economic Society of Australia, vol. 89, pages 31-47, June.
    2. Nicholas Biddle & Maxine Montaigne, 2017. "Income Inequality in Australia – Decomposing by City and Suburb," Economic Papers, The Economic Society of Australia, vol. 36(4), pages 367-379, December.
    3. Andrew Leigh, 2005. "Deriving Long‐Run Inequality Series from Tax Data," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 58-70, August.
    4. Kevin Milligan & Michael Smart, 2015. "Taxation and top incomes in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 48(2), pages 655-681, May.
    5. Thomas Piketty & Emmanuel Saez, 2012. "Optimal Labor Income Taxation," NBER Working Papers 18521, National Bureau of Economic Research, Inc.
    6. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    7. Andrews Dan & Jencks Christopher & Leigh Andrew, 2011. "Do Rising Top Incomes Lift All Boats?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-45, January.
    8. Anjan K. Saha & Vinod Mishra & Russell Smyth, 2021. "Financial development and top income shares in OECD countries," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 952-978, January.
    9. 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.
    10. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2009. "The long-run determinants of inequality: What can we learn from top income data?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 974-988, August.
    11. A. B. Atkinson & Andrew Leigh, 2005. "The Distribution of Top Incomes in New Zealand," CEPR Discussion Papers 503, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    12. Abigail Mcknight & T. Tsang, 2013. "GINI Country Report: Growing Inequalities and their Impacts in the United Kingdom," GINI Country Reports united_kingdom, AIAS, Amsterdam Institute for Advanced Labour Studies.
    13. 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 of Labor Economics (IZA).
    14. Cabral, René & García-Díaz, Rocío & Mollick, André Varella, 2016. "Does globalization affect top income inequality?," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 916-940.
    15. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    16. Иванов В.Н. & Овсиенко Ю.В. & Сухова Н.Н., 2015. "Социальная Сфера России В 1990-2000-Е Годы (Трудовая Деятельность И Уровень Жизни Населения)," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(2), pages 3-18, апрель.
    17. Andrew Leigh, 2007. "How Closely Do Top Income Shares Track Other Measures of Inequality?," Economic Journal, Royal Economic Society, vol. 117(524), pages 619-633, November.
    18. Francisco M. Gonzalez & Jean‐François Wen, 2015. "A Theory of Top Income Taxation and Social Insurance," Economic Journal, Royal Economic Society, vol. 125(587), pages 1474-1500, September.
    19. Wen Hao Chen & Michael Förster & Ana Llena-Nozal, 2013. "Globalisation, technological progress and changes in regulations and institutions – which impact on the rise of earnings inequality in OECD countries?," LIS Working papers 597, LIS Cross-National Data Center in Luxembourg.
    20. Almas Heshmati & Jungsuk Kim & Jacob Wood, 2019. "A Survey of Inclusive Growth Policy," Economies, MDPI, vol. 7(3), pages 1-18, July.

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    More about this item

    Keywords

    New Zealand; Canada; Australia; taxation; United Kingdom; inequality; United States;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative

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