Has U.S. Income Inequality Really Increased?

There are frequent complaints that U.S. income inequality has increased in recent decades. Estimates of rising inequality that are widely cited in the media are often based on federal income tax return data. Those data appear to show that the share of U.S. income going to the top 1 percent (those people with the highest incomes) has increased substantially since the 1970s.However, there have been large changes in U.S. tax rules over time that have made a dramatic difference on what is reported as income on individual tax returns. Tax changes induced thousands of businesses to switch from filing under the corporate tax system to filing under the individual tax system. Corporate executives switched from accepting stock options taxed as capital gains to nonqualified stock options taxed as salaries. The huge growth in tax-favored savings plans, such as 401(k)s, has resulted in billions of dollars of investment income disappearing from tax returns. Meanwhile, studies of inequality that are based on tax return data usually exclude transfer payments, which results in exaggerating the shares of income received by those at the top by ignoring growing amounts of income at the bottom.Measurements of inequality have also been affected by large reductions in income tax rates, particularly in 1986. Estimates by many economists indicate that the reported income of highincome taxpayers is very responsive to tax rates. When top tax rates on wages or capital gains fall, reported incomes rise, and a larger fraction of the incomes of those at the top show up on tax returns. International comparisons show that reported income shares of those at the top have risen the most where top tax rates have been cut the most (the United States, the United Kingdom, and India) and have risen the least where top tax rates have remained very high (France and Japan).In sum, studies based on tax return data provide highly misleading comparisons of changes to the U.S. income distribution because of dramatic changes in tax rules and tax reporting in recent decades. Aside from stock option windfalls during the late-1990s stock-market boom, there is little evidence of a significant or sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth over the past 20 years

Distributional Effects of Changes in Australian Infrastructure Industries during the 1990s

During the 1990s, reforms and other developments improved productivity and reduced prices in Australian infrastructure services. These changes raised the average incomes of Australian households. Household incomes increased in every jurisdiction and in every decile of the income distribution. Changes in the electricity and telecommunications industries dominated distributional outcomes. The main sources of changes were productivity improvements and lower real prices. There was a mix of direct price effects, indirect price effects and income effects. Direct price effects - real prices paid by households for most infrastructure services declined. Low income households gained proportionately more from such declines than high income households. Indirect price effects - decreasing infrastructure prices lowered costs for industry and, consequently, output prices fell. This reduced households’ expenditure and the cost of Australia’s exports. Output increased in some industries. This increased the demand for other inputs which, in turn, led to wage increases in some occupations and increased returns to capital. This led to costs and prices rising, and output falling, in some industries. Income effects - wages increased most for occupations that are more heavily represented in high income households. High income households also receive a large proportion of returns to capital, which also increased. Low income households that do not rely on wage incomes were not affected directly by the changes in wages. Overall, the effect on household income distribution was small, slightly favouring more affluent households, because increases in factor incomes (wages and returns to capital) dominated. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.microeconomic reform; economic modelling; utilities; urban transport; telecommunications

The Impact of Increased Import Competition from the People’s Republic of China on Income Inequality and Household Welfare in Viet Nam

This paper examines the surge of imports from the PRC to Viet Nam from 2000 to 2014 in order to evaluate the effects of increased exposure to trade with the PRC on income inequality and household welfare in Viet Nam. Using household level data from the Viet Nam Household Living Standard Survey and combining it with measures of trade exposure, we find that increased imports led to a fall in inequality at the provincial and district level. We distinguish between intermediate and final goods and find similar results. In order to better understand the relative gains and losses across income groups, we apply a quantile regression approach. Our results indicate that increased imports were more often positively correlated with household income for households located in the lower quantiles. In contrast, for households in the upper quantiles the correlation is either negative or less pronounced

Fiscal policy, growth and income distribution in the UK

Income and income inequality increased substantially in the UK during the industrial revolution. Income inequality was the highest around 1880. This triggered enactments of more egalitarian tax and transfer system, which halved income inequality by the 1960s. Inequality has risen again with fiscal system reforms in the last five decades. By analysing solutions of a dynamic computable general equilibrium (DCGE) model we show how policies could be designed for the optimal equitable paths of UK economy in the 21st century

(WP 2007-01) Openness, Income-Tax Progressivity, and Inflation

This paper considers a model of an open economy in which the degree of income-tax progressivity influences the interaction among openness, central bank independence, and the inflation rate. Our model suggests that an increase in the progressivity of the tax system induces a smaller response in real output to a change in the price level. This implies that increased income-tax progressivity reduces the equilibrium inflation rate and that the effect of increased income-tax progressivity on inflation is smaller when the central bank places a higher weight on inflation or when there is greater openness. Examination of cross-country inflation data provides empirical support for these key predictions

Gambling In NH: Odds Improve 2/11/13

Support for legalizing gambling has increased in New Hampshire in recent years. Income and sales taxes, as well as increased property taxes, remain unpopular

Initial Results From the New York Noncustodial Parent EITC

Examines the design, adoption, and initial outcomes of New York's earned income tax credit program for low-income parents who do not have custody but pay child support. Recommends increased outreach to improve implementation and participation rates

Mortality Crisis in Russia Revisited: Evidence from Cross-Regional Comparison

This paper provides evidence from cross-regional comparisons that the Russian mortality crisis (mortality rate increased from 1.0% to 1.6% in 1989-94 and stayed at a level of 1.4-1.6% thereafter) was caused mostly by stress factors (increased unemployment, labor turnover, migration, divorces, income inequalities), and by the increase in unnatural deaths (murders, suicides, accidents), but not so much by the increase in alcohol consumption (even though it also increased due to the same stress factors). Health infrastructure of a region had a positive impact on life expectancy only in regions with high income inequalities (large share of highest income group).MORTALITY CRISIS IN RUSSIA

Mosquitoes: The Long-term Effects of Malaria Eradication in India

We examine the effects of malaria on educational attainment and income by exploiting geographic variation in malaria prevalence in India prior to a nationwide eradication program in the 1950s. We find that the program led to modest increases in income for prime age men. This finding is robust to using very localized sources of geographic variation and to instrumenting for pre-eradication prevalence with climate factors. We do not observe improvements in income for women, suggesting that observed effects are likely driven by increased labor market productivity. We find no evidence of increased educational attainment for men, and mixed evidence for women.

Risk Sharing through Capital Gains

We estimate channels of international risk sharing between European Monetary Union (EMU), European Union, and other OECD countries 1992-2007. We focus on risk sharing through savings, factor income flows, and capital gains. Risk sharing through factor income and capital gains was close to zero before 1999 but has increased since then. Risk sharing from capital gains, at about 6 percent, is higher than risk sharing from factor income flows for European Union countries and OECD countries. Risk sharing from factor income flows is higher for Euro zone countries, at 14 percent, reflecting increased international asset and liability holdings in the Euro area.