2009 TopIncomesintheLongRunofHistory

• (Atkinson et al., 2009) ⇒ Anthony B Atkinson, Thomas Piketty, and Emmanuel Saez. (2009). “Top Incomes in the Long Run of History." doi:10.1257/jel.49.1.3

Subject Headings: Top Income Population.

Cited By

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Abstract

A recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics. Top incomes represent a small share of the population but a very significant share of total income and total taxes paid. Hence, aggregate economic growth per capita and Gini inequality indexes are sensitive to excluding or including top incomes. We discuss the estimation methods and issues that arise when constructing top income share series, including income definition and comparability over time and across countries, tax avoidance, and tax evasion. We provide a summary of the key empirical findings. Most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate postwar decades. However, over the last thirty years, top income shares have increased substantially in English speaking countries and in India and China but not in continental European countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past. Finally, we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open. (JEL D31, D63, H26, N30)

1. Introduction

There has been a marked revival of interest in the study of the distribution of top incomes using income tax data. Beginning with the research by Piketty of the long run distribution of top incomes in France (Thomas Piketty 2001, 2003), there has been a succession of studies constructing top income share time series over the long run for more than twenty countries. In using data from the income tax records, these studies use similar sources and methods as the pioneering study for the United States by Simon Kuznets (1953). Kuznets’s estimates were not, how-ever, systematically updated and, in more recent years, household survey data have become the primary source for the empirical analysis of inequality. The underlying income tax data continued to be available but remained in the shade for a long period. This relative neglect by economists adds to the interest of the findings of recent tax-based research.

The research surveyed here covers a wide variety of countries and opens the door to the comparative study of top incomes using income tax data. In contrast to existing international databases, generally restricted to the post-1970 or post-1980 period, the top income data cover a much longer period, which is important because structural changes in income and wealth distributions often span several decades. In order to properly understand such changes, one needs to be able to put them into broader historical perspective. The new data provide estimates that cover much of the twentieth century and in some cases go back to the nineteenth century — a length of time series familiar to economic historians but unusual for most economists. Moreover, the tax data typically allow us to decompose income inequality into labor income and capital income components. Economic mechanisms can be very different for the distribution of labor income (demand and supply of skills, labor market institutions, etc.) and the distribution of capital income (capital accumulation, credit constraints, inheritance law and taxation, etc.), so that it is difficult to test these mechanisms using data on total incomes.

This paper surveys the methodology, main findings, and perspectives emerging from this collective research project on the dynamics of income distribution. Starting with Piketty (2001), those studies have been published separately as monographs or journal articles. Recently, those studies have been gathered in two edited volumes (Anthony B. Atkinson and Piketty 2007, 2010), which contain twentytwo country specific chapters along with a general summary chapter (Atkinson, Piketty, and Emmanuel Saez 2010), and a methodological chapter (Atkinson 2007b) upon which this survey draws extensively.

We focus on the data series produced in this project on the grounds that they are fairly homogenous across countries, annual, long-run, and broken down by income source for most countries. They cover twentytwo countries, including many European countries (France, Germany, Netherlands, Switzerland, United Kingdom, Ireland, Norway, Sweden, Finland, Portugal, Spain, Italy), Northern America (United States and Canada), Australia and New Zealand, one Latin American country (Argentina), and five Asian countries (Japan, India, China, Singapore, Indonesia). They cover periods that range from 15 years (China) and 30 years (Italy) to 120 years (Japan) and 132 years (Norway). Hence they offer a unique opportunity to better understand the dynamics of income and wealth distribution and the interplay between inequality and growth. The complete database is available online at the Paris School of Economics at http://g-mond.parisschoolofeconomics.eu/topincomes/.

To be sure, our series also suffer from important limitations, and we devote considerable space to a discussion of these. First, the series measure only top income shares and hence are silent on how inequality evolves elsewhere in the distribution. Second, the series are largely concerned with gross incomes before tax. Thirdly, the definition of income and the unit of observation

References

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	Author	volume	Date Value	title	type	journal	titleUrl	doi	note	year
2009 TopIncomesintheLongRunofHistory	Thomas Piketty Emmanuel Saez Anthony B Atkinson			Top Incomes in the Long Run of History				10.1257/jel.49.1.3		2009