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Capital and Labor Income Pareto Exponents in the United States, 1916-2019

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  • Ji Hyung Lee
  • Yuya Sasaki
  • Alexis Akira Toda
  • Yulong Wang

Abstract

Accurately estimating income Pareto exponents is challenging due to limitations in data availability and the applicability of statistical methods. Using tabulated summaries of incomes from tax authorities and a recent estimation method, we estimate income Pareto exponents in U.S. for 1916-2019. We find that during the past three decades, the capital and labor income Pareto exponents have been stable at around 1.2 and 2. Our findings suggest that the top tail income and wealth inequality is higher and wealthy agents have twice as large an impact on the aggregate economy than previously thought but there is no clear trend post-1985.

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  • Ji Hyung Lee & Yuya Sasaki & Alexis Akira Toda & Yulong Wang, 2022. "Capital and Labor Income Pareto Exponents in the United States, 1916-2019," Papers 2206.04257, arXiv.org.
    • Handle: RePEc:arx:papers:2206.04257
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    References listed on IDEAS

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    2. Harmenberg, Karl, 2024. "A simple theory of Pareto-distributed earnings," Economics Letters, Elsevier, vol. 234(C).

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