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Rising Income Risk at the Top

Author

Listed:
  • J. Carter Braxton
  • Kyle F. Herkenhoff
  • Chengdai Huang
  • Michael Nattinger
  • Jonathan L. Rothbaum
  • Lawrence D.W. Schmidt

Abstract

We document an increase in U.S. income risk from 1969 to 2019 using newly digitized IRS tax returns, distinguishing permanent from transitory risk. Since the 1970s, permanent income risk increased across the distribution, but most sharply among high earners, rising nearly 70% among the top 5%. We show that, even among top earners, large negative income shocks strongly predict financial distress and higher income risk is linked with higher savings. In a quantitative life-cycle model, rising income risk concentrated at the top lowers the risk-free rate by 0.7pp, increases wealth inequality, and contributes to the "savings glut of the rich."

Suggested Citation

  • J. Carter Braxton & Kyle F. Herkenhoff & Chengdai Huang & Michael Nattinger & Jonathan L. Rothbaum & Lawrence D.W. Schmidt, 2026. "Rising Income Risk at the Top," NBER Working Papers 35664, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35664
    Note: EFG
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    More about this item

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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