Income and Wealth Inequality

  • Nicholas Bloom
  • Raj Chetty
  • Emmanuel Saez

Leaders: Nicholas Bloom, Raj Chetty, Emmanuel Saez

The CPI is home to some of the country’s most influential analyses of the income and wealth distribution. The purpose of the Income and Wealth RG is to monitor the ongoing takeoff in income inequality, to better understand its sources, and to analyze its implications for labor market performance, educational attainment, mobility, and more. The following is a sampling of the CPI’s research projects within this area.

Trends in income and wealth inequality: What are the key trends in U.S. income and wealth inequality? The U.S. increasingly looks to Emmanuel Saez and his research team for the latest data on U.S. economic inequality.

Distributional National Accounts: In an ambitious infrastructural project, Emmanuel Saez and his team are building a “Distributional National Accounts” based on tax returns, a data set that will eliminate the current gap between (a) national accounts data based on economic aggregates and (b) inequality analysis that uses micro-level tax data to examine the distribution of income but is not consistent with national aggregates. This new data set will in turn make it possible to evaluate the extent to which economic growth, which has long been represented as a preferred poverty-reduction approach, is indeed delivering on that objective.

The rise of between-firm inequality: How much of the rise in earnings inequality can be attributed to increasing between-firm dispersion in the average wages they pay? This question can be addressed by constructing a matched employer-employee data set for the United States using administrative records.

Rent and inequality: It is increasingly fashionable to argue that “rent” accounts for much of the takeoff in income inequality. The Current Population Survey can be used to assess whether this claim is on the mark. 

Income And Wealth - CPI Research

Title Author Media
The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program David H. Autor, Mark Duggan , Kyle Greenberg , David S. Lyle

The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program

Author: David H. Autor, Mark Duggan , Kyle Greenberg , David S. Lyle
Publisher: American Economic Journal: Applied Economi
Date: 06/2016

Combining administrative data from the U.S. Army, Department of Veterans Affairs, and Social Security Administration, we analyze the effect of the VA's Disability Compensation (DC) program on veterans' labor force participation and earnings. We study the 2001 Agent Orange decision, a unique policy change that expanded DC eligibility for Vietnam veterans who served in theatre but did not expand eligibility to other veterans of this era, to assess the causal effects of DC enrollment. We estimate that benefits receipt reduced veterans’ labor force participation by 18 percentage points, though measured income net of transfer income rose on average.

Beyond Income: What Else Predicts Very Low Food Security Among Children? Patricia M. Anderson, Kristin F. Butcher, Hilary W. Hoynes, Diane Whitmore Schanzenbach

Beyond Income: What Else Predicts Very Low Food Security Among Children?

Author: Patricia M. Anderson, Kristin F. Butcher, Hilary W. Hoynes, Diane Whitmore Schanzenbach
Publisher: Southern Economic Journal
Date: 06/2016

We examine characteristics and correlates of households in the United States that are most likely to have children at risk of inadequate nutrition – those that report very low food security (VLFS) among their children. Using 11 years of the Current Population Survey, plus data from the National Health and Nutrition Examination Survey and American Time Use Survey, we describe these households in great detail with the goal of trying to understand how these households differ from households without such severe food insecurity. While household income certainly plays an important role in determining VLFS among children, we find that even after flexibly controlling for income-to-poverty rates some household characteristics and patterns of program participation have important additional explanatory power. Finally, our examination of the NHANES and ATUS data suggests an important role for both mental and physical health in determining the food security status of children.

Millionaire Migration and Taxation of the Elite Evidence from Administrative Data Cristobal Young, Charles Varner, Ithai Z. Lurie, Richard Prisinzano

Millionaire Migration and Taxation of the Elite Evidence from Administrative Data

Author: Cristobal Young, Charles Varner, Ithai Z. Lurie, Richard Prisinzano
Publisher: American Sociological Review
Date: 06/2016

A growing number of U.S. states have adopted “millionaire taxes” on top income-earners. This increases the progressivity of state tax systems, but it raises concerns about tax flight: elites migrating from high-tax to low-tax states, draining state revenues, and undermining redistributive social policies. Are top income-earners “transitory millionaires” searching for lower-tax places to live? Or are they “embedded elites” who are reluctant to migrate away from places where they have been highly successful? This question is central to understanding the social consequences of progressive taxation. We draw on administrative tax returns for all million-dollar income-earners in the United States over 13 years, tracking the states from which millionaires file their taxes. Our dataset contains 45 million tax records and provides census-scale panel data on top income-earners. We advance two core analyses: (1) state-to-state migration of millionaires over the long-term, and (2) a sharply-focused discontinuity analysis of millionaire population along state borders. We find that millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.

Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality Andreas Fagereng , Luigi Guiso , Davide Malacrino , Luigi Pistaferri

Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality

Author: Andreas Fagereng , Luigi Guiso , Davide Malacrino , Luigi Pistaferri
Publisher: American Economic Review
Date: 05/2016

Lacking a long time series on the assets of the very wealthy, Saez and Zucman (2015) use US tax records to obtain estimates of wealth holdings by capitalizing asset income from tax returns. They document marked upward trends in wealth concentration. We use data on tax returns and actual wealth holdings from tax records for the whole Norwegian population to test the robustness of the methodology. We document that measures of wealth based on the capitalization approach can lead to misleading conclusions about the level and the dynamics of wealth inequality if returns are heterogeneous and even moderately correlated with wealth.

A Vicious Cycle: A Social–Psychological Account of Extreme Racial Disparities in School Discipline Jason A. Okonofua, Greg Walton, Jennifer L. Eberhardt

A Vicious Cycle: A Social–Psychological Account of Extreme Racial Disparities in School Discipline

Author: Jason A. Okonofua, Greg Walton, Jennifer L. Eberhardt
Publisher: Perspectives on Psychological Science
Date: 05/2016

Can social–psychological theory provide insight into the extreme racial disparities in school disciplinary action in the United States? Disciplinary problems carry enormous consequences for the quality of students’ experience in school, opportunities to learn, and ultimate life outcomes. This burden falls disproportionately on students of color. Integrating research on stereotyping and on stigma, we theorized that bias and apprehension about bias can build on one another in school settings in a vicious cycle that undermines teacher–student relationships over time and exacerbates inequality. This approach is more comprehensive than accounts in which the predicaments of either teachers or students are considered alone rather than in tandem, it complements nonpsychological approaches, and it gives rise to novel implications for policy and intervention. It also extends prior research on bias and stigmatization to provide a model for understanding the social–psychological bases of inequality more generally.

Income And Wealth - CPI Affiliates

Emmanuel Saez Co-Director, Center on Poverty and Inequality; Income and Wealth Research Group Leader; Professor of Economics; Director, Center for Equitable Growth University of California, Berkeley
Nicholas Bloom Income and Wealth Research Group Leader; William D. Eberle Professor of Economics Stanford University
Raj Chetty Mobility Research Group Leader; Income and Wealth Research Group Leader; Director of Opportunity Lab Stanford University
Charles Varner Executive Director, Center on Poverty and Inequality; Pathways Senior Editor Stanford University
Edward Nathan Wolff Professor of Economics; Research Associate, NBER New York University

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Income And Wealth - Other Research

Title Author Media
Inequality in Children’s Contexts: Income Segregation of Households with and without Children Ann Owens

Inequality in Children’s Contexts: Income Segregation of Households with and without Children

Author: Ann Owens
Publisher: American Sociological Review
Date: 06/2016

Past research shows that income segregation between neighborhoods increased over the past several decades. In this article, I reexamine income segregation from 1990 to 2010 in the 100 largest metropolitan areas, and I find that income segregation increased only among families with children. Among childless households—two-thirds of the population—income segregation changed little and is half as large as among households with children. I examine two factors that may account for these differences by household composition. First, I find that increasing income inequality, identified by past research as a driver of income segregation, was a much more powerful predictor of income segregation among families with children, among whom income inequality has risen more. Second, I find that local school options, delineated by school district boundaries, contribute to higher segregation among households with children compared to households without. Rising income inequality provided high-income households more resources, and parents used these resources to purchase housing in particular neighborhoods, with residential decisions structured, in part, by school district boundaries. Overall, results indicate that children face greater and increasing stratification in neighborhood contexts than do all residents, and this has implications for growing inequalities in their future outcomes.

Asset Limits, SNAP Participation, and Financial Stability Caroline Ratcliffe, Signe-Mary McKernan, Laura Wheaton, Emma Cancian Kalish, Catherine Ruggles, Sara Armstrong, Christina Oberlin

Asset Limits, SNAP Participation, and Financial Stability

Author: Caroline Ratcliffe, Signe-Mary McKernan, Laura Wheaton, Emma Cancian Kalish, Catherine Ruggles, Sara Armstrong, Christina Oberlin
Publisher: The Urban Institute
Date: 06/2016

Asset limits in means-tested programs are designed to target benefits to the neediest people, but they can discourage low-income households from saving and can increase program costs when participants leave and reenter the program (i.e., churn) for administrative reasons. Using Survey of Income and Program Participation data from 1997 to 2013, we find that relaxing Supplemental Nutrition Assistance Program (SNAP) asset limits through broad-based categorical eligibility increases the likelihood that low-income people live in a household with a bank account (by 5 percent) and at least $500 in that bank account (by 8 percent). We also find that relaxed asset limits reduce SNAP churn by 26 percent.

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? Jeffrey Thompson

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

Author: Jeffrey Thompson
Publisher: Federal Reserve Board of Governors
Date: 05/2016

One potential consequence of rising concentration of income at the top of the distribution isincreased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? Jeffrey P. Thompson

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

Author: Jeffrey P. Thompson
Publisher: Finance and Economics Discussion Series 2016-046
Date: 05/2016

One potential consequence of rising concentration of income at the top of the distribution is increased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper-middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Reducing Income Inequality in Educational Attainment: Experimental Evidence on the Impact of Financial Aid on College Completion Sara Goldrick-Rab, Robert Kelchen, Douglas N. Harris, James Benson

Reducing Income Inequality in Educational Attainment: Experimental Evidence on the Impact of Financial Aid on College Completion

Author: Sara Goldrick-Rab, Robert Kelchen, Douglas N. Harris, James Benson
Publisher: American Journal of Sociology
Date: 05/2016

Income inequality in educational attainment is a long-standing concern, and disparities in college completion have grown over time. Need-based financial aid is commonly used to promote equality in college outcomes, but its effectiveness has not been established, and some are calling it into question. A randomized experiment is used to estimate the impact of a private need-based grant program on college persistence and degree completion among students from low-income families attending 13 public universities across Wisconsin. Results indicate that offering students additional grant aid increases the odds of bachelor’s degree attainment over four years, helping to diminish income inequality in higher education.