Political Economy and the Mechanics of Politics

Thomas Piketty and Emmanuel Saez , "Income Inequality in the United States, 1913-1998," Quarterly Journal of Economics 118, no. 1 (2003): 1-39.

Simon Kuznets , Shares of Upper Income Groups in Income and Savings (New York: National Bureau of Economic Research, 1953).

Anthony B. Atkinson , "Measuring Top Incomes: Methodological Issues," in Top Incomes over the 20th Century. A Contrast between Continental European and English-Speaking Countries, ed. Anthony B. Atkinson and Thomas Piketty (Oxford, UK: Oxford University Press, 2007), 18-42.

Estimates based on tax returns were described as "highly misleading" by Alan Reynolds in "Has U.S. Income Inequality Really Increased?" (Policy Analysis 586, Cato Institute, Washington, DC, January 2007). Thomas Piketty and Emmanuel Saez retorted that this contention rests on serious misunderstandings of their work ("Response by Thomas Piketty and Emmanuel Saez to: The Top 1% . . . of What? By Alan Reynolds" (mimeo, University of California, Berkeley, 2006), http://elsa.berkeley.edu/~saez/answer-WSJreynolds.pdf. Among the points raised by Reynolds, attention has to be paid to the fact that taxpayers’ reporting behavior reflects strategies of fiscal manipulation such as shifting the year in which an income is reported or reclassifying an income to a category enjoying a lower tax rate. It is however reasonable to expect that such factors are less relevant in the analysis of long-run tendencies.

Emmanuel Saez , "Striking It Richer: The Evolution of Top Incomes in the United States (Update with 2007 Estimates)" (mimeo and data, University of California, Berkeley, 2009), http://elsa.berkeley.edu/~saez/,tableA1.

U.S. Census Bureau, "Historical Income Tables-Table H-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2008," http:// www.census.gov/hhes/www/income/histinc/h02AR.xls, and "Historical Income Tables- Table F-2. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Families, All Races: 1947 to 2008," http://www.census.gov/hhes/www/income/histinc/f02AR.xls.

The Piketty and Saez series refers to gross taxable income before all deductions, which is the sum of salaries and wages, business and partnership income, dividends, interest, rents, and royalties, plus some other minor income items. Following Hacker and Pierson, I focus here on the series excluding realized capital gains.

The considerable Current Population Survey (CPS) rise between 1992 and 1993 reflects, in part, technical changes in the survey, in particular the increase of the upper limits (top codes) used in recording certain items. For instance, the top code for earnings from the longest job or business was raised from $299,999 to $999,999. The income share of the richest 5 percent of households would have gone up by 1.4 percentage points instead of the recorded 2.4 points, had top codes remained the same as in 1992. See table 1 at p. 54 of Paul Ryscavage, "A Surge in Growing Income Inequality?" Monthly Labor Review 118, no. 8 (1995): 51-61.

U.S. Congressional Budget Office (CBO), "Historical Effective Federal Tax Rates: 1979 to 2006," April 2009, http://www.cbo.gov/publications/collections/tax/2009/summary _table_2006.pdf.

The CBO income definition is more comprehensive, including the employers’ share of payroll taxes, corporate income taxes, excise taxes on consumption, and the value of income received in-kind from various sources. Moreover, the CBO ranks households by income adjusted by household size, although it reports average incomes and income shares unadjusted for household size.

U.S. Census Bureau, "Historical Income Tables-Experimental Measures-Table RDI-5. Index of Income Concentration (Gini index), by Definition of Income: 1979 to 2003," http://www.census.gov/hhes/www/income/histinc/rdi5.html.

This difference provides only a crude estimate: if benefits did not exist, people would behave differently and pretax income inequality would not be the same. For a discussion see Andrea Brandolini and Timothy M. Smeeding, "Inequality Patterns in Western Democracies: Cross-Country Differences and Changes over Time," in Democracy, Inequality, and Representation, ed. P. Beramendi and C. J. Anderson (New York: Russell Sage, 2008), 25-61.

Burkhauser and coauthors do not need to adjust for the top coding implemented in public-use files for confidentiality reasons, as they have access to internal CPS files. They deal with the top coding applied when data are collected (see note 8 above) by specifying a statistical procedure based on fitting Generalized Beta of the Second Kind (GB2) distributions. They adopt simple and reasonable assumptions to identify tax units within households and exploit the detailed information available in the CPS to closely match the income concept used in tax returns. Richard V. Burkhauser, Shuaizhang Feng, Stephen P. Jenkins, and Jeff Larrimore, "Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data" (Working Paper 15320, National Bureau of Economic Research, Cambridge, MA, September 2009).

Ibid., 5.

Brandolini and Smeeding, "Inequality Patterns in Western Democracies"; and Andrea Brandolini and Timothy M. Smeeding, "Income Inequality in Richer and OECD Countries," in The Oxford Handbook of Economic Inequality, ed. W. Salverda, B. Nolan and T. M. Smeeding (Oxford, UK: Oxford University Press, 2009), 71-100.

Paul Krugman , The Conscience of a Liberal (New York: Norton, 2007).

Atkinson and Piketty , eds., Top Incomes over the 20th Century; and Anthony B. Atkinson and Thomas Piketty , eds., Top Incomes. A Global Perspective ( Oxford, UK: Oxford University Press, 2010).

Anthony B. Atkinson and Thomas Piketty , "Towards a Unified Data Set on Top Incomes," in Top Incomes over the 20th Century, ed. Atkinson and Piketty , 531-65, 543.

See figures 13.2A and 13.2B, p. 541, in Atkinson and Piketty, "Towards a Unified Data Set on Top Incomes," and figures 3 and 4, p. F626, in Andrew Leigh, "How Closely Do Top Income Shares Track Other Measures of Inequality?" Economic Journal 117, no. 524 (2007): F619-33. The latter article is the source for Hacker and Pierson’s figure 3.

Anthony B. Atkinson and Andrea Brandolini , "The Panel-of-Countries Approach to Explaining Income Inequality: An Interdisciplinary Research Agenda," in Mobility and Inequality: Frontiers of Research from Sociology and Economics, ed. S. L. Morgan , D. B. Grusky , and G. S. Fields ( Stanford, CA: Stanford University Press, 2006), 400-448; and Anthony B. Atkinson and Andrea Brandolini , "From Earnings Dispersion to Income Inequality," in Inequality and Economic Integration, ed. F. Farina and E. Savaglio (London: Routledge , 2007), 35-62.

For a survey, see Lawrence F. Katz and David H. Autor, "Changes in the Wage Structure and Earnings Inequality," in Handbook of Labor Economics, vol. 3A, ed. O. Ashenfelter and D. Card (Amsterdam: Elsevier, 1999), 1463-1555.

John E. DiNardo, Nicole M. Fortin, and Thomas Lemieux, "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica 64, no. 5 (1996): 1001-44; John E. DiNardo and Thomas Lemieux, "Diverging Male Wage Inequality in the United States and Canada, 1981-1988: Do Institutions Explain the Difference?" Industrial and Labor Relations Review 50, no. 4 (1997): 629-51; Nicole M. Fortin and Thomas Lemieux, "Institutional Changes and Rising Wage Inequality: Is There a Linkage?" Journal of Economic Perspectives 11, no. 2 (1996): 75-96; David Card and John E. DiNardo, "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics 20, no. 4 (2002): 733-83.

The household structure and the pooling of individual labor earnings into the household market income, and the private-public composition of employment are two further elements that impinge on the relationship between wage distribution and market income distribution.

Daniele Checchi and Cecilia García-Peñalosa, "Labour Market Institutions and Income Inequality," Economic Policy October (2008): 601-49, and Daniele Checchi and Cecilia García-Peñalosa, "Labour Market Institutions and the Personal Distribution of Income in the OECD," Economica (forthcoming).

Arthur S. Alderson and François Nielsen, "Globalisation and the Great U-Turn: Income Inequality Trends in 16 OECD Countries," American Journal of Sociology 107, no. 5 (2002): 1244-99.

Brandolini and Smeeding, "Income Inequality in Richer and OECD Countries."

Figures are not comparable across nations as underlying time series reflect national practices.

My focus here is on cash transfers, but the current intense confrontation on the health care reform in the United States is an example of the salience of in-kind public transfers too.

Andrea Louise Campbell , "The Public’s Role in Winner-Take-All Politics," Politics & Society, 38(2): 227-231.

Enrico Moretti, "Real Wage Inequality" (Working Paper 14370, National Bureau of Economic Research, Cambridge, MA, September 2008); and Christian Broda and John Romalis, "The Welfare Implications of Rising Price Dispersion" (mimeo, University of Chicago, July 2009).

Home mortgages and consumer credit liabilities of the households and nonprofit organizations are from U.S. Federal Reserve Board, "Flow of Funds Accounts of the United States (Z.1)," http://www.federalreserve.gov/datadownload/default.htm. Disposable personal income and personal saving are from U.S. Bureau of Economic Analysis, "Selected NIPA Tables. Table 2.1. Personal Income and Its Disposition," http://www.bea.gov/ national/nipaweb/SelectTable.asp?Selected=Y#S2. The Survey of Consumer Finances data are from table 7, p. 31, in Kevin B. Moore and Michael G. Palumbo, "The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances" (paper 2010-06, Finance and Economics Discussion Series, Federal Reserve Board, Washington, D.C., February 2010)

Barry Z. Cynamon and Steven M. Fazzari , "Household Debt in the Consumer Age: Source of Growth-Risk of Collapse," Capitalism and Society 3, no. 2 (2008): art. 3; and Colin Crouch , "Privatised Keynesianism: An Unacknowledged Policy Regime," British Journal of Politics and International Relations 11, no. 3 (2009): 382-99.

Jonathan Heathcote, Fabrizio Perri, and Giovanni L. Violante, "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," Review of Economic Dynamics 13, no. 1 (2010): 15-51.

Anthony B. Atkinson, "Is Rising Income Inequality Inevitable? A Critique of the Transatlantic Consensus" (3rd WIDER Annual Lecture, United Nations University, World Institute for Development Economics Research, Helsinki, November 1999), 1.

The self-celebratory account of the story of the Institute for Economic Affairs in London given by its director John Blundell in a lecture at the Heritage Foundation in 1989 is revealing of the systematic worldwide effort of promarket activists. John Blundell, "Waging the War of Ideas: Why There Are No Shortcuts," in Waging the War of Ideas, 3rd ed. (London: Institute of Economic Affairs, 2007), 33-46.

Andrew Glyn , Capitalism Unleashed. Finance, Globalization, and Welfare ( Oxford, UK: Oxford University Press, 2006), 1-2.

Andrew Glyn and Bob Sutcliffe , "The Critical Condition of British Capital," New Left Review 1, no. 66 (1971): 3-33, 3.

A model where skill-biased technical change causes deunionization and deunionization, in turn, amplifies the original disequalizing effect of technical change on the wage distribution is discussed by Daron Acemoglu, Philippe Aghion, and Giovanni L. Violante, "Deunionization, Technical Change and Inequality," Carnegie-Rochester Conference Series on Public Policy 55, no. 1 (2001): 229-64.