estimating top income and wealth shares sensitivity to data and methods abstract administrative income tax data indicate that u s top income and wealth shares are both substantial and larger than shares observed in household surveys however these estimates are sensitive to the unit of analysis the income concept measured in tax records and in the case of wealth to assumptions about the correlation between income and wealth we constrain a household survey the survey of consumer finances to be conceptually comparable to tax records and are able to reconcile the much of the difference between the survey and administrative estimates wealth estimates from administrative income tax data are sensitive to model parameters

earnings inequality and mobility in the united states evidence from social security data since 1937 this paper uses social security administration longitudinal earnings micro data since 1937 to analyze the evolution of inequality and mobility in the united states annual earnings inequality is u shaped decreasing sharply up to 1953 and increasing steadily afterward short term earnings mobility measures are stable over the full period except for a temporary surge during world war ii virtually all of the increase in the variance in annual log earnings since 1970 is due to increase in the variance of permanent earnings as opposed to transitory earnings mobility at the top of the earnings distribution is stable and has not mitigated the dramatic increase in annual earnings concentration since the 1970s long term mobility among all workers has increased since the 1950s but has slightly declined among men the decrease in the gender earnings gap and the resulting substantial increase in upward mobility over a lifetime for women are the driving force behind the increase in long term mobility among all workers

the evolution of wealth inequality over half a century the role of taxes transfers and technology over the last 50 years the u s tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors this paper investigates the macroeconomic repercussions of this change in policy particularly for the distributions of income wealth and consumption changes in taxes and transfers account for nearly half of the rise in wealth concentration nonetheless their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality

wealth inequality theory measurement and decomposition this paper reviews the basic principles of inequality measurement underlining the advantages and shortcomings of alternative measures from a theoretical standpoint and in the context of the study of the distribution of wealth adopting the two most popular measures the gini index and the p shares the paper documents wealth inequality in canada using the 1999 2005 and 2012 survey of financial security sfs it carries out several decompositions with covariates featuring dfl type reweighting methods and gini and p shares rif regressions the latter parallel decompositions deepen our understanding of how changes in socio demographic characteristics including the compensating role of family formation and human capital impact wealth inequality

how should capital be taxed this survey discusses how capital should be taxed in advanced economies we review the theoretical optimal tax literature survey empirical studies on the distribution of capital and the distortion

credibility and policy convergence in a two party system with rational voters the traditional approach to modeling political parties behavior based upon the contribution of anthony downs 1957 assumes that the parties unique objective is to win elections thus they maximize their popularity the crucial implication of this assumption for a two party system is that if the two parties have the same information about voters preferences full convergence of policies results from electoral competition this is the crucial implication of the median voter theorem more generally it may be argued that different parties are motivated differently because they represent different constituencies parties may not care only about winning elections per se but also about the quality of the policies resulting from an election in this case the candidates of the two parties view winning an election not only as a goal per se but also as a means of implementing a better policy for their respective constituencies this paper shows that electoral competitions imply dynamic inconsistency if the voters are modeled as rational and forwardlooking agents and parties do not care exclusively about being elected but also about which policy to implement once elected the dynamic inconsistency arises as follows the parties have an incentive to announce convergent platforms to increase their chances of election however if the elected party is not committed to its electoral platform it has an incentive to follow its most preferred policy rather than the policy announced in its platform if voters are rational they account for this incentive thus in general in a one shot electoral game the only timeconsistent equilibrium is one in which no convergence is possible the two parties follow their most preferred policies and the voters rationally expect this outcome full convergence of parties platforms results only as a limiting case when the parties are completely indifferent with respect to the quality of the policies resulting from the election thus these results differ from the existing literature on ideologically motivated politicians for instance donald wittman 1977 1983 randall calvert 1985 which implicitly assumes the possibility of binding commitments to electoral platforms complete or partial policy convergence can be the outcome of political competition if the interaction between the parties and the voters is modeled as an infinitely repeated game in fact if the candidates have concave objective functions the welfare maximizing policy rule implies a complete convergence of parties policies however this cooperative and agreed upon policy may or may not be sustainable as a subgame perfect equilibrium depending on parameter values in particular it depends on the discount rates of the two parties the degree of polarization of their preferences and the relative popu graduate school of industrial administration carnegie mellon university pittsburgh pa 15213 and national bureau of economic research cambridge ma 02138 this paper is based upon a chapter of my unpublished doctoral dissertation at harvard university i am greatly indebted to jeffrey sachs for directing my attention toward these issues and for many conversations i also wish to thank andrew abel dilip abreu olivier blanchard ramon caminal andrew caplin alex cukierman morris fiorina benjamin friedman herschel grossman howard rosenthal and the referees for very useful comments the responsibilitv af anv n mtnkieis af calrirp nfnlv mine the result of policy convergence in a two party system is more general than the median voter theorem for discussions of convergence results not at the median see john ledyard 1984 peter coughlin 1984 coughlin and shmuel nitzan 1981 melvin hinich 1977 for earlier work on spatial competition see richard mckelvey 1975 hinich ledyard and peter ordeshook 1972 1973 and the references quoted therein the present paper focuses on the result of convergence rather than on the median voter theorem per se

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

family education and sources of wealth among the richest americans 1982 2012 we examine characteristics of the 400 wealthiest individuals in the u s over the past three decades as tabulated by forbes magazine and analyze which theories of increasing inequality are most consistent with these data the forbes 400 in recent years did not grow up as advantaged as in decades past they are more likely to have started their businesses and to have grown up upper middle class not wealthy today s forbes 400 were able to access education while young and apply their skills to the most scalable industries technology finance and mass retail most of the change occurred by 2001

the great overestimation tax data and inequality measurements in the united states 1913 1943 historical measures of income inequality in the united states must grapple with the challenge of data quality we examine one such problem affecting the well known estimates of income inequality produced by piketty and saez 2003 using the records of the internal revenue service irs prior to 1943 incomes were self reported combined with lax enforcement on the part of the irs self reporting of incomes could provide a misleading portrait of the income distribution to test the accuracy of irs records we compare them to independently tabulated state income tax returns between 1919 and 1945 from states with more comprehensive and rigorously enforced tax collection procedures state income tax records show lower overall levels of income inequality than irs records however we still find that top income concentrations declined across the period between 1929 and world war ii these findings attest to the sensitivity of distributional estimation to the reporting selectivity and economic quality of underlying tax data suggesting that the existing irs derived series systematically overstates top income concentration in the interwar period jel h2 n32 d31 e01

what do we know about evolution of top wealth shares in the united states in piketty s 2014 prominent book capital in the twenty first century he argues that the concentration of wealth may become increasingly extreme in the future as piketty reminds us the group of rentiers people living off accumulated capital has been historically large and politically and socially influential because so much of large fortunes end up being inherited the current concentration of wealth is bound to predict at least weakly and perhaps strongly how important rentiers will be regardless of whether one buys into depictions such as the rentier enemy of democracy p 422 the extent to which the well off are going to rely on work versus rely on the returns to their wealth in the future is clearly important for assessing the extent to which a society will view itself as in some way a meritocracy given that the us economy has experienced rising inequality in its income and earning distributions for example piketty and saez 2003 or see the symposium on the top 1 percent in the summer 2013 issue of this journal one would expect that the distribution of wealth would follow a similar path however available evidence on this topic is much more scant and conflicting than that on income and earnings in fact when piketty 2014 reports direct estimates of wealth concentration for france the united kingdom sweden and the united states in chapter 10 of his book he finds as yet little evidence of dramatic increase in wealth concentration in any of these countries

inheritance and wealth inequality evidence from population registers we use new population wide register data on inheritances and wealth in sweden to estimate the causal impact of inheritances on wealth inequality we find that inheritances reduce relative wealth inequality e g the gini coefficient falls by 5 10 percent but that absolute dispersion increases examining different parts of the wealth distribution we find that the top decile s wealth share decreases substantially whereas the wealth share of the bottom half increases from a negative to a positive share in essence wealthier heirs inherit larger amounts but less wealthy heirs inherit more relative to their pre inheritance wealth we also find that post inheritance behavioral adjustments mitigate the equalizing effect of inheritances because less wealthy heirs consume larger shares of their inheritances moreover we find that the swedish inheritance tax reduced the equalizing inheritance effect but that the redistribution of tax revenues could reverse this result finally we show that inheritances increase wealth mobility

risk uncertainty and the dynamics of inequality abstract the dynamics of wealth inequality are studied in a continuous time blanchard yaari model investment returns are idiosyncratic and subject to knightian uncertainty in response agents formulate robust portfolio policies these policies are nonhomothetic wealthy agents invest a higher fraction of their wealth in uncertain assets yielding higher mean returns this produces a feedback mechanism that amplifies inequality it also produces an accelerated rate of convergence which helps resolve a puzzle recently identified by gabaix et al 2016 an empirically plausible increase in uncertainty can account for about half of the recent increase in top wealth shares

financial market segmentation stock market volatility and the role of monetary policy we explore the role of monetary policy in a world of segmented nancial markets where the agents who trade stocks encounter nancial income risk although the rest do not in such an economy we ask the question of how the monetary authority operates when it aims to maximize total welfare we nd that optimal monetary policy has the novel role of sharing the nancial market risk traders face among all agents in the economy this nding holds for any concave utility function and is not sensitive to the degree of market segmentation when risk is shared perfectly in this way consumption is equalized between the two groups and agents if given the choice would be indierent between participating or not in the nancial markets we also explore the implications that this policy has for the volatility of stock prices and of ination when compared to the policies of constant money supply ination targeting and nominal interest rate pegging we nd that optimal monetary policy is not necessarily associated either with minimal stock price volatility or with minimal ination volatility

survival and long run dynamics with heterogeneous beliefs under recursive preferences i analytically characterize the long run behavior of an economy with two types of agents who differ in their beliefs and are endowed with homothetic recursive preferences agents with more incorrec

women wealth and mobility using estate tax returns data we observe that the share of women among the very wealthy in the united states peaked in the late 1960s at nearly one half and then declined to one third we argue that this pattern reflects changes in the importance of dynastic wealth with the share of women proxying for inher ited wealth if so wealth mobility decreased until the 1970s and rose thereafter such an interpretation is consistent with technological change driving long term trends in mobility and inequality as well as the recent divergence between top wealth and top income shares documented elsewhere jel d31 j16 j62 033 the extent of and changes in intergenerational mobility of wealth are central to understanding dynamics of wealth inequality but are hard to measure in this paper we argue that the share of women among the wealthiest americans can be used as a proxy for the importance of inherited rela tive to self made wealth this approach assumes that women tend to inherit rather than make great fortunes if so a higher share of women among the wealthy would reflect a rise in inherited wealth at the top and thus lower wealth mobility conversely higher wealth mobility where self made wealth replaces inherited wealth would result in more men at the top of the wealth distribution judged by this proxy and corroborated by various data sources wealth mobility decreased in the period 1925 1969 and increased thereafter such a pattern is consistent with an important role for technological change in shaping the wealth distribution and can provide an explanation for why wealth concentra tion has remained stable despite increasing income concentration in the last three decades over the past century the share of women among the very wealthy followed an inverse u pattern peaking in the late 1960s according to estate tax returns in 1925 one quarter of the wealthiest 0 01 percent were women this fraction rose rapidly through world war ii wwii and then more slowly to peak in 1969 when women neared parity with men since then the decline has been marked by 2000 women s share had fallen to one third its prewar level while the rise was evident among all wealth groups in the top 1 percent of the wealth distribution the decline was confined to the very top figure ia graphs the share of women for four different groups in the top 1 percent among decedents by year figure ib does the same for the living population with the help of estate multipliers a method that treats death as a random sampling device and uses mortality rates by age and gender to infer the distribution of wealth among the living as described in the data appendix while the rise in the share of women among the wealthy until the 1960s could reflect improve ments in women s economic status labor market gains work against the recent decline for instance since the 1970s the share of women among top earners top 0 1 percent has risen by

business incomes at the top business income constitutes a large and increasing share of income and wealth at the top of the distribution we discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners with the focus on closely held and pass through firms these considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code we discuss the importance of these issues in the us and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere

the dynamics of inequality the past forty years have seen a rapid rise in top income inequality in the united states while there is a large number of existing theories of the pareto tail of the long run income distributions almost none of these address the fast rise in top inequality observed in the data we show that standard theories which build on a random growth mechanism generate transition dynamics that are too slow relative to those observed in the data we then suggest two parsimonious deviations from the canonical model that can explain such changes scale dependence that may arise from changes in skill prices and type dependence that is the presence of some high growth types these deviations are consistent with theories in which the increase in top income inequality is driven by the rise of superstar entrepreneurs or managers

the role of bequests in shaping wealth inequality evidence from danish wealth records using danish administrative data we estimate the impact of bequests on the level and inequality of wealth we employ an event study design where we follow the distribution of wealth over time of people who are 45 50 years old and divided into treatment group and control group depending on whether a parent dies or not bequests account for 26 percent of the average post bequest wealth 1 3 years after parental death and significantly affect wealth throughout the distribution we find that bequests increase measures of absolute wealth inequality variance but reduce relative inequality top wealth shares following the receipts of bequests variance of the distribution censored at the top bottom 1 increases by 33 percent but the top 1 share declines by 6 percentage points from an initial level of 31 percent and the top 10 share declines by 10 percentage points from a base of around 81 percent

groups in rational turnout models a model of the strategic calculus of voting that incorporates the behavior of groups is presented if candidates choose different positions positive turnout is possible in partial equilibrium and is generally larger than that without group rationality nevertheless if candidates are probability maximizers and a unique general equilibrium exists the candidates will choose equivalent positions and turnout will be zero even with group rationality but if candidates care about both policy and winning they will choose different positions and cause positive turnout this turnout will be larger than that that would occur without group rationality group rationality alone cannot explain positive turnout in a general equilibrium theory of elections it does imply larger turnout in conjunction with policy oriented candidates than would be predicted solely by individualistic rational behavior

wealth inequality in the united states since 1913 evidence from capitalized income tax data this paper combines income tax returns with flow of funds data to estimate the distribution of household wealth in the united states since 1913 we estimate wealth by capitalizing the incomes reported by individual taxpayers accounting for assets that do not generate taxable income we successfully test our capitalization method in three micro datasets where we can observe both income and wealth the survey of consumer finance linked estate and income tax returns and foundations tax records wealth concentration has followed a u shaped evolution over the last 100 years it was high in the beginning of the twentieth century fell from 1929 to 1978 and has continuously increased since then the rise of wealth inequality is almost entirely due to the rise of the top 0 1 wealth share from 7 in 1979 to 22 in 2012 a level almost as high as in 1929 the bottom 90 wealth share rst increased up to the mid 1980s and then steadily declined the increase in wealth concentration is due to the surge of top incomes combined with an increase in saving rate inequality top wealth holders are younger today than in the 1960s and earn a higher fraction of total labor income in the economy we explain how our ndings can be reconciled with survey of consumer finances and estate tax data

top wealth shares in the uk over more than a century abstract recent research highlighted controversy about the evolution of concentration of personal wealth in this paper we provide new evidence about the long run evolution of top wealth shares for the united kingdom the new series covers a long period from 1895 to the present and has a different point of departure from the previous literature we start with the analysis of the distribution of estates left at death we find that the application to the estate data of mortality multipliers to yield estimates of wealth among the living does not substantially change the degree of concentration over much of the period both in the uk and us allowing inferences to be made for years when this method cannot be applied the results show that wealth concentration in the uk remained relatively constant during the first wave of globalization but then decreased dramatically in the period from 1914 to 1979 the uk went from being more unequal in terms of wealth than the us to being less unequal however the decline in uk wealth concentration came to an end around 1980 and since then there is evidence of an increase in top shares notably in the distribution of wealth excluding housing in recent years we investigate the triangulating evidence provided by data on capital income concentration and on reported super fortunes

born with a silver spoon danish evidence on wealth inequality in childhood we study wealth inequality in childhood using danish wealth records from three decades while teenagers have some earnings we estimate that transfers account for at least 50 percent of wealth at age 18 and much more so for the rich children inheritance from grandparents does not appear quantitatively important but we do find evidence that children receive inter vivos transfers while wealth holdings are small in childhood they have strong predictive power for future wealth in adulthood asset holdings at age 18 are more informative than parental wealth in predicting wealth of children many years later when they are in their 40s hence childhood wealth reveals significant heterogeneity in the intergenerational transmission of wealth which is not simply captured by parental wealth alone we investigate why this is the case and rule out that childhood wealth in itself can accumulate enough to explain later wealth inequality our evidence indicates that childhood wealth is a proxy for a broad set of circumstances related to intergenerational transmission and future wealth accumulation including savings investment behavior and additional transfers

information and inequality abstract this paper studies wealth inequality in a blanchard yaari model with idiosyncratic investment returns its key innovation is to assume that individuals can buy information information reduces uncertainty about the unknown mean investment return reduced estimation risk encourages investment in higher yielding risky assets as a result endogenous information acquisition amplifies wealth inequality wealthy individuals buy more information which leads them to invest a higher share of their wealth in higher yielding assets which then makes them even wealthier the model s empirical implications are studied using monte carlo simulations and perturbation approximations an empirically plausible decrease in information costs can explain about two thirds of the observed increase in the top 1 wealth share