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http://ssrn.com/abstract=2207372
 
 

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Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes


Thomas L. Hungerford


Economic Policy Institute

January 23, 2013


Abstract:     
This paper examines changes in after-tax income inequality among tax filers between 1991 and 2006. In particular, how changes in wages, capital income, and tax policy contribute to changes in income inequality is investigated. To examine the role of these three possible contributors to the increase in income inequality, the Gini coefficient is decomposed by income source using the method developed by Lerman and Yitzhaki (1985). The Gini coefficient of after-tax income increased by 15 percent (0.071 points) between 1991 and 2006. By far, the largest contributor to this increase was changes in income from capital gains and dividends. Changes in wages had an equalizing effect over this period as did changes in taxes. Most of the equalizing effect of taxes took place after the 1993 tax hike; most of the equalizing effect, however, was reversed after the 2001 and 2003 Bush-era tax cuts. Similar results are obtained with other inequality measures.

Number of Pages in PDF File: 41

Keywords: income inequality, Gini coefficient, capital income, wages, taxes

JEL Classification: D3, D6

working papers series


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Date posted: January 27, 2013 ; Last revised: February 25, 2013

Suggested Citation

Hungerford, Thomas L., Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes (January 23, 2013). Available at SSRN: http://ssrn.com/abstract=2207372 or http://dx.doi.org/10.2139/ssrn.2207372

Contact Information

Thomas L. Hungerford (Contact Author)
Economic Policy Institute ( email )
Washington, DC
United States
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