Recent Research on Income Distribution: An Overview of the Field

Abstract

The distribution of income in the United States has long been of interest to economists. Using data on tax returns, Piketty and Saez (2003) concluded that top income shares had more than doubled since 1980. This paper helped trigger broader public concerns about rising inequality and stagnating incomes for lower- and middle-class households. But this paper was criticized by academics for using a narrow definition of income that failed to account for the dramatic growth of Social Security, Medicare, and other transfer programs and for ignoring the effects of declining marriage rates and smaller household size. More recent work by Piketty, Saez, and Zucman (2018) addressed some of these issues using a broader income measure based on national income but still found dramatic increases in top income shares. Their new analysis has also been criticized for overstating top income shares due to certain assumptions used to allocate income not reported on tax returns. This paper examines these issues in measuring the distribution of income, compares the analysis and results of recent studies, and presents a more nuanced view of income inequality over time. While there is always uncertainty about distributional analysis, the best available evidence suggests that top income shares are lower and have increased less than some have claimed and that real incomes have increased over time for all income groups, though not necessarily for every household.

Keywords: personal income, wealth, and their distributions; equity, justice, inequality, and other normative criteria and measurement; distribution; welfare economics.

JEL Classification: D31,D63,D3,D6