The newest and best data on income inequality

The paper is by Bakija, Cole, and Heim, find it here.

There is much to say about this paper, but first of all the Kaplan and Rauh work, which I have cited several times, seems to offer incorrect estimates of the professions of the higher earners.  Here is the authors' corrective chart: Kaplan 

Here is a summary of their broader results:

Our findings suggest that the incomes of executives, managers, supervisors, and financial professionals can account for 60 percent of the increase in the share of national income going to the top percentile of the income distribution between 1979 and 2005. We also demonstrate significant heterogeneity in income growth across and within occupations among people in the top percentile of the income distribution, suggesting that factors that changed in the same way over time for all high income people are probably not the main cause of increasing inequality at the top. The incomes of executives, managers, financial professionals, and technology professionals who are in the top 0.1 percent of the income distribution are found to be very sensitive to stock market fluctuations. Most of our evidence suggests that financial market asset prices, corporate governance, entrepreneurship, and income shifting across corporate and personal tax bases may be especially important in explaining the dramatic rise in top income shares.

I would reword this as a) "it's complicated," and b) "a lot of them made the money in capital markets."  It does remain the case that top incomes in finance rose by far most rapidly.

In this very careful and rigorous paper, here is a "scream it from the rooftops" result:

…we find that a one percent increase in the net of tax share is associated with an 0.7 percent reduction in incomes earned by people in the top 0.1 percent of the income distribution, which would imply that if we were to raise top marginal tax rates further on these taxpayers, the increase in deadweight loss would be substantially larger than the increase in revenue raised [emphasis added]. However, we find essentially no evidence at all of any responsiveness of people below the top 0.1 percent…

Better stock up on those cough drops.

For the pointer I thank Adam Looney.


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