Working Paper: NBER ID: w15320
Authors: Richard V. Burkhauser; Shuaizhang Feng; Stephen P. Jenkins; Jeff Larrimore
Abstract: Although the vast majority of US research on trends in the inequality of family income is based on public-use March Current Population Survey (CPS) data, a new wave of research based on Internal Revenue Service (IRS) tax return data reports substantially higher levels of inequality and faster growing trends. We show that these apparently inconsistent estimates can largely be reconciled once one uses internal CPS data (which better captures the top of the income distribution than public-use CPS data) and defines the income distribution in the same way. Using internal CPS data for 1967-2006, we closely match the IRS data-based estimates of top income shares reported by Piketty and Saez (2003), with the exception of the share of the top 1 percent of the distribution during 1993-2000. Our results imply that, if inequality has increased substantially since 1993, the increase is confined to income changes for those in the top 1 percent of the distribution.
Keywords: Income Inequality; Top Income Shares; CPS; IRS; Data Reconciliation
JEL Codes: C81; D31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| use of internal CPS data (C80) | reconciles higher inequality estimates from IRS tax data (H24) |
| discrepancies in income inequality trends (D31) | arise from limitations of public-use CPS data (C81) |
| substantial increases in income inequality since 1993 (D31) | primarily confined to the top 1% of the income distribution (D31) |
| IRS data shows significant rise in top income shares during 1993-2000 (D33) | attributed to fiscal manipulation strategies and changes in tax laws (H32) |
| divergence in trends for the top 1% during specific periods (F62) | likely due to changes in reporting behavior and survey design (C83) |