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Top Income Inequality in the 21st Century: Some Cautionary Notes

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  • Fatih Guvenen
  • Greg Kaplan

Abstract

We revisit recent empirical evidence about the rise in top income inequality in the United States, drawing attention to key issues that we believe are critical for an informed discussion about changing inequality since 1980: the definition of income (labor versus total), the unit of analysis (individual versus tax unit), the importance of partnership and S-corporation income, income shifting between the corporate and personal sectors in response to tax incentives, the definition of the top of the distribution, and trends in the middle and bottom of the distribution. Our goal is to inform researchers, policymakers, and journalists who are interested in top income inequality.

Suggested Citation

  • Fatih Guvenen & Greg Kaplan, 2017. "Top Income Inequality in the 21st Century: Some Cautionary Notes," Quarterly Review, Federal Reserve Bank of Minneapolis, issue October, pages 2-15.
    • Handle: RePEc:fip:fedmqr:00003
    DOI: 10.21034/qr.3811
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    1. Michael Cooper & John McClelland & James Pearce & Richard Prisinzano & Joseph Sullivan & Danny Yagan & Owen Zidar & Eric Zwick, 2016. "Business in the United States: Who Owns It, and How Much Tax Do They Pay?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 91-128.
    2. Fatih Guvenen & Greg Kaplan & Jae Song, 2014. "The Glass Ceiling and the Paper Floor: Gender Differences among Top Earners, 1981–2012," Working Papers 716, Federal Reserve Bank of Minneapolis.
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    5. Jon Bakija & Adam Cole & Bradley Heim, 2008. "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data," Department of Economics Working Papers 2010-22, Department of Economics, Williams College, revised Jan 2012.
    6. Jesse Bricker & Alice Henriques & Jacob Krimmel & John Sabelhaus, 2016. "Measuring Income and Wealth at the Top Using Administrative and Survey Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 261-331.
    7. Emmanuel Saez, 2012. "Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2009 and 2010 estimates)," Technical Notes 201202, World Inequality Lab.
    8. Alan J. Auerbach & Joel Slemrod, 1997. "The Economic Effects of the Tax Reform Act of 1986," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 589-632, June.
    9. Owen Zidar & Eric Zwick & Danny Yagan & Matthew Smith, 2017. "Capitalists in the 21st Century," 2017 Meeting Papers 1064, Society for Economic Dynamics.
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    Cited by:

    1. Florian Scheuer & Joel Slemrod, 2020. "Taxation and the Superrich," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 189-211, August.
    2. Paul Hufe & Ravi Kanbur & Andreas Peichlifo, 2022. "Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3345-3380.
    3. Giri Parameswaran & Hunter Rendleman, 2022. "Redistribution under general decision rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 159-196, February.
    4. Fabian Kindermann & Dirk Krueger, 2022. "High Marginal Tax Rates on the Top 1 Percent? Lessons from a Life-Cycle Model with Idiosyncratic Income Risk," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 319-366, April.
    5. Keller, Wolfgang & Olney, William W., 2021. "Globalization and executive compensation," Journal of International Economics, Elsevier, vol. 129(C).
    6. Bruce D. Meyer & James X. Sullivan, 2017. "Consumption and income inequality in the US since the 1960s," AEI Economics Working Papers 953873, American Enterprise Institute.
    7. Duquette, Nicolas J., 2018. "Inequality and philanthropy: High-income giving in the United States 1917–2012," Explorations in Economic History, Elsevier, vol. 70(C), pages 25-41.
    8. Egor Malkov, 2021. "Welfare Effects of Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Papers 2108.09981, arXiv.org, revised Sep 2021.
    9. Greg Kaplan & Sam Schulhofer-Wohl, 2018. "The Changing (Dis-)utility of Work," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 239-258, Summer.
    10. Pogorelskiy, Kirill & Traub, Stefan, 2017. "Skewness, Tax Progression, and Demand for Redistribution : Evidence from the UK," CRETA Online Discussion Paper Series 29, Centre for Research in Economic Theory and its Applications CRETA.
    11. Egor Malkov, 2021. "Welfare Effects of the Labor Income Tax Changes on Married Couples: A Sufficient Statistics Approach," Working Papers 590, ECINEQ, Society for the Study of Economic Inequality.
    12. Tom Phelan, 2019. "The Optimal Taxation of Business Owners," Working Papers 19-26R, Federal Reserve Bank of Cleveland, revised 28 May 2021.
    13. Paola Sapienza, 2020. "Comment on "The Glass Ceiling and the Paper Floor: Changing Gender Composition of Top Earners since the 1980s"," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, pages 374-380, National Bureau of Economic Research, Inc.
    14. Vincenzo Quadrini & Qi Sun & yicheng wang, 2019. "Capitalist Human Capital," 2019 Meeting Papers 1155, Society for Economic Dynamics.
    15. Benjamin Pugsley & Sebastian Dyrda, 2017. "Taxes, Regulations of Businesses and Evolution of Income Inequality in the US," 2017 Meeting Papers 1463, Society for Economic Dynamics.
    16. Brant Abbott & Giovanni Gallipoli, 2018. "Human Capital Inequality: Empirical Evidence," Working Papers 2018-085, Human Capital and Economic Opportunity Working Group.

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    More about this item

    Keywords

    Entrepreneurial income; Top 1 percent; Income inequality; Top income shares; pass-through entities;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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