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Comparison of personal income inequality estimates based on data from the IRS and Census Bureau

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Listed author(s):
  • Kitov, Ivan

Abstract

This paper demonstrates quantitatively that modern estimates of income inequality based on the data reported by the IRS are not reliable. Principal problem of the IRS data consists in highly volatile income estimates in the low-end of personal income distribution. This volatility is likely related to measurement errors, changes in definitions or improper reporting. Personal income estimates at high and the highest incomes are robust and follow the Pareto law. At high incomes, personal income distributions for 1990 and 2004, when normalized to total population with income and total (gross) personal income, practically coincide. Hence, the inequality estimates based on the IRS data are distorted by inaccurate readings in the low-income zone. At the same time, income data provided by the US Census Bureau are consistent over time in all income ranges. Results presented by Kitov (2007) demonstrate that personal income distributions based on readings obtained in the Current Population Survey are characterized by practically constant Gini coefficient since 1960. This observation implies that normalized personal income distributions are also not changing with time.

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File URL: https://mpra.ub.uni-muenchen.de/5372/1/MPRA_paper_5372.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5372.

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Date of creation: 18 Oct 2007
Handle: RePEc:pra:mprapa:5372
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Keywords: personal income distribution; economic inequality; Gini coefficient; IRS; Census Bureau;

Find related papers by JEL classification:

  • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
  • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
  • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
  • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
  • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
  • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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  1. Kitov, Ivan, 2007. "Modeling the evolution of Gini coefficient for personal incomes in the USA between 1947 and 2005," MPRA Paper 2798, University Library of Munich, Germany.
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Cited by:

  1. Kitov, Ivan & Kitov, Oleg, 2013. "The dynamics of personal income distribution and inequality in the United States," MPRA Paper 48649, University Library of Munich, Germany.
  2. Kitov, Ivan, 2008. "Modeling the evolution of age-dependent Gini coefficient for personal incomes in the U.S. between 1967 and 2005," MPRA Paper 10107, University Library of Munich, Germany.

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