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Using the series of the top 1% income shares in 137 countries, I examine the relationship between top-end inequality and subsequent economic growth from the 1920s to the 2010s. These data enable a versatile exploration of various time horizons. To address concerns regarding chosen functional forms, I employ penalized spline methods to accommodate potential nonlinearities. Empirical findings suggest that the relationship between top-end inequality and subsequent growth is complex, contingent upon both the investigated time horizon and the level of economic development. I find some evidence for a positive link at medium levels of economic development, with this positive link being more pronounced in short- to medium-term associations. I also find that the positive medium-run association weakens as economic development advances. In advanced economies, a negative (or nonpositive) medium- to long-term relationship emerges between the top 1% income share and growth in many settings. Furthermore, I conclude that longer-run associations need to be investigated further. [ABSTRACT FROM AUTHOR]

There have been important studies of recent income inequality and of poverty in South Africa, but very little is known about the long-run trends over time. There is speculation about the extent of inequality when the Union of South Africa was formed in 1910, but no hard evidence. In this paper, we provide evidence that is partial—being confined to top incomes—but which for the first time shows how the income distribution changed on a (near) annual basis from 1913 onwards. We present estimates of the shares in total income of groups such as the top 1% and the top 0.1%, covering the period from colonial times to the twenty-first century. For a number of years during the apartheid period, we have data classified by race. The estimates for recent years bear out the picture of South Africa as a highly unequal country, but allow this to be placed in historical and international context. The time series presented here will, we hope, provide the basis for detailed investigation of the impact of South African institutions and policies, past and present. But the similarity of the changes over time in top incomes across the four ex-dominions suggests that national developments have to be seen in the light of common global forces. [ABSTRACT FROM AUTHOR]

Population changes in countries with little natural growth tend to occur via migration channels and among poorer individuals such as refugees and economic migrants, or richer individuals such as international white collar workers or global entrepreneurs. These migratory flows are increasing in size, they are difficult to capture in censuses and surveys, and they potentially bias the measurement of inequality. This paper provides a formal treatment of the impact of population changes on the measurement of inequality when changes occur to the extremes of an income distribution. It provides the conditions under which inequality is expected to increase or decrease and determines the relative importance of including or excluding selected observations at the top or at the bottom. An application to US data illustrates the mathematical results and shows that including or excluding observations from the extremes can bias the measurement of inequality significantly. [ABSTRACT FROM AUTHOR]

We propose a new method to approximate income distribution dynamics at the micro level using only macro data on aggregate moments of the income distribution. Under the assumption that individual incomes follow a lognormal autoregressive process, we show that the evolution of the mean and standard deviation of log income across individuals provides sufficient information to bound the degree of mobility. We estimate mobility bounds for 46 countries, using time series data on aggregate moments of the income distribution available in the World Inequality Database and the World Bank's PovcalNet database. This new data allows us to study the correlates of mobility, and to document churning in the top and bottom of the income distribution, in a much larger set of countries than was previously possible. [ABSTRACT FROM AUTHOR]

This paper studies the sensitivity of long-run trends in top income shares to differences in top-share measures. While the standard measure fixes a share of the population, we define alternatives that allow variation in both incomes and size of the top group based on defining absolute income thresholds. In an application to United States data, we find that top income share trends over the past century vary somewhat depending on the measure used. Allowing top groups to increase in size after 1980 along with overall economic growth results in a larger increase of top income shares. The historical drops before WWII are sensitive to the choice of income deflator: using GDP inflates interwar top income shares but using CPI deflates them. Altogether, these results recommend using complementary approaches to defining top income groups when measuring long-term top income share trends. [ABSTRACT FROM AUTHOR]

UK official statistics on income distribution have incorporated top-income adjustments to household survey data since 1992. This article reviews the work undertaken by the Department for Work and Pensions and the Office for National Statistics, and the academic research that influenced them, and reflects on the lessons to learn from the UK experience. [ABSTRACT FROM AUTHOR]

Low response rates among rich households are thought to be a serious problem in many applications using household surveys. The paper discusses the various ways the problem can be dealt with, and makes some recommendations for practice, including in developing countries. Under certain conditions, income-selective non-compliance with an initially randomized assignment can be corrected by reweighting the data. This requires that the surveys pick up at least some top incomes. If not, then income tax records can help, including in estimating distributional national accounts. However, tax data come with their own concerns including tax avoidance/evasion, weak coverage of informal sectors and illicit incomes, and concerns about construct validity, given the limitations of taxable income as a basis for inter-personal comparisons of economic welfare. An appropriately weighted survey-based distribution of an acceptable measure of economic welfare need not be less reliable for most purposes of distributional analysis than income-tax records, including in combination with surveys. The choice will depend on the question to be addressed, and country-specific circumstances. These measurement issues warrant further research across multiple settings. [ABSTRACT FROM AUTHOR]

Top incomes are often related to Pareto distribution. To date, economists have mostly used Pareto Type I distribution to model the upper tail of income and wealth distribution. It is a parametric distribution, with interesting properties, that can be easily linked to economic theory. In this paper, we first show that modeling top incomes with Pareto Type I distribution can lead to biased estimation of inequality, even with millions of observations. Then, we show that the Generalized Pareto distribution and, even more, the Extended Pareto distribution, are much less sensitive to the choice of the threshold. Thus, they can provide more reliable results. We discuss different types of bias that could be encountered in empirical studies and, we provide some guidance for practice. To illustrate, two applications are investigated, on the distribution of income in South Africa in 2012 and on the distribution of wealth in the United States in 2013. [ABSTRACT FROM AUTHOR]

Public debates about the rise in top income shares often focus on the growing dispersion in earnings, and the soaring pay for top executives and financial-sector employees. But can the change in the marginal distribution of earnings on its own explain the rise in top income shares? Are top executives replacing capital owners in the group of top-income earners, or are we rather witnessing a fusion of top capital and top earnings? This paper proposes an extension of the copula framework and uses it for exploring the changing composition of top incomes. It illustrates that changes in top income shares can easily be decomposed into respective changes in the marginal distributions of labour and capital income and the changing association between the two types of income. An application using tax record data from Norway shows that the association between top labour and capital incomes grew stronger between 1995 and 2005 in the top half of the wage and capital income distribution, though it declined for the top 1% of capital income receivers. A gender decomposition demonstrates that the association of wage and capital incomes at the top is particularly striking for men, whilst women are largely under-represented in the top halves of the two marginal distributions. [ABSTRACT FROM AUTHOR]

To deal with the problem of underestimation of top incomes in household surveys, we propose a methodology to combine the income distributions of the Brazilian 2010 Census (survey) and of 2010 DIRPF (personal income tax reports). The method consists in estimating a system of non-response weights that uses as frame the tax register and is applied to the top of the distribution. After applying this calibration methodology, we decompose inequality income sources. Correcting survey distributions with tax data increases the contribution of non-labor income to inequality, as the case of the Brazilian Census shows. Changes in the methodology do not affect the results substantially. [ABSTRACT FROM AUTHOR]

In many high-income countries over the past three decades there has been both large growth in inequality of wages and income and a shift in the burden of taxation from the top to the middle of the income distribution. A literature has developed which focuses on optimal tax rates for the top 1 % of the income distribution. In contrast, this paper considers the effect of inequality growth on the structure of a piecewise linear tax system defined over the entire income distribution. Our results suggest that the appropriate response to the increases in inequality would have been a shift towards a tax system with a lower tax rate in the lower half of the distribution together with a highly marginal rate progressive structure in the upper half, a clear differentiation between the top 10 % and the top 1 % and a higher top tax rate. Further inequality growth strengthens these characteristics of the optimal tax structure. [ABSTRACT FROM AUTHOR]

Most previous studies of income inequality have either ignored capital gains or have used taxable realized capital gains to estimate top incomes. Neither of these approaches is fully satisfactory. We apply for the first time a new methodology that allows us to account for fundamental accrued capital gains as part of the top incomes in a theoretically consistent manner. We estimate the shares of the super-rich in Chile showing that accrued capital gains have a large impact on these estimates. Also, the top income shares estimated using fundamental capital gains appear to exhibit a more stable and presumably more plausible time profile than estimates based on capital gains derived from asset market variations. [ABSTRACT FROM AUTHOR]

In this paper, we review three data sets which summarize world-wide inequality across countries and years: World Development Indicators ('WDI')/'PovcalNet' and 'All the Ginis' (ATG), each of which has some origins at the World Bank. We hope to inform both experienced and novice users of the existence of these important data sets, provide a review of their benefits and drawbacks, suggest how to use them, and provide suggestions for future improvements. The review is grounded in the history of the development of such data sets, which also necessarily informs users of critical information and the types of choices one must make in order to understand how to measure and compare poverty and inequality over space and time. [ABSTRACT FROM AUTHOR]

Atkinson et al. (J. Econ. Lit. 49( 1):3-71, 2011) survey an important new literature using income-tax-based data to measure the share of income held by top income groups. But changes in tax legislation that expand the tax base to include income sources (e.g. capital gains, dividends, etc.) disproportionately held by these groups will conflate such an expansion with an increase in the share of income they hold. We provide a cautionary tale from Australia of how comprehensive tax reform legislation in 1985 substantially altered Australian top income series, especially those that do not separate taxable realized capital gains from other taxable income. Drawing on the Household, Income and Labour Dynamics in Australia (HILDA) Survey we then estimate the size and distribution (across income groups) of taxable realized capital gains in 2006 and 2009, and compare these results with those using accrued capital gains, finding substantially different distributions. More importantly, we find substantial differences across our measures in how capital gains changed between 2006 and 2009. Our results suggest that yearly taxable realized capital gains, often included in studies of top incomes, might be a poor proxy for the theoretically more appropriate yearly accrued capital gains. [ABSTRACT FROM AUTHOR]

This article discusses the main challenges faced by nowadays researchers when measuring income inequality in Latin America. The discussion is articulated around the two main approaches to summarize the distributional problem: factor and personal inequality. The article underlines the difficulties, mainly imposed by data availability for inequality measurement under both of them. The article proposes specific lines to advance in the improvement of data quality and availability for inequality measurement (and understanding) in the region. [ABSTRACT FROM AUTHOR]