The Distribution of Top Incomes in Five Anglo-Saxon Countries Over the Twentieth Century

54 Pages Posted: 29 Jun 2010

See all articles by Anthony B. Atkinson

Anthony B. Atkinson

University of Oxford - Nuffield College of Medicine; CESifo (Center for Economic Studies and Ifo Institute)

Andrew Leigh

Australian House of Representatives Parliament House; Centre for Applied Macroeconomic Analysis, ANU; IZA

Abstract

Taxation data have been used to create long-run series for the distribution of top incomes in quite a number of countries. Most of these studies have focused on the national experience of individual countries, but we can also learn from cross-country comparisons. Comparative analysis is therefore the next stage in the research program. At the same time, we know from other fields that there are dangers in simply pooling all available time series, without regard to the specific nature of data and reality. In this paper, we therefore adopt an intermediate approach, taking five Anglo-Saxon countries that have relatively similar backgrounds and tax systems: Australia, Canada, New Zealand, the UK, and the US. The first part of the paper tackles the challenge of comparability of income-tax based estimates across countries and across time. The second part summarizes the evidence about top income shares. Across these five countries, the shares of the very richest exhibit a strikingly similar pattern, falling in the three decades after World War II, before rising sharply from the mid-1970s onwards. The share of the top 1 percent is highly correlated across Anglo-Saxon countries, more so than the share of the next 4 percent. The third part of the paper looks at the relationship between taxes and top income shares. Controlling for country and year fixed effects, we find that a reduction in the marginal tax rate on wage income is associated with an increase in the share of the top percentile group. Likewise, a fall in the marginal tax rate on investment income (based on a lagged moving average) is associated with a rise in the share of the top percentile group.

Keywords: inequality, taxation, Australia, Canada, New Zealand, United Kingdom, United States

JEL Classification: D31, H23, N30

Suggested Citation

Atkinson, Anthony B. and Leigh, Andrew, The Distribution of Top Incomes in Five Anglo-Saxon Countries Over the Twentieth Century. IZA Discussion Paper No. 4937. Available at SSRN: https://ssrn.com/abstract=1631072

Anthony B. Atkinson (Contact Author)

University of Oxford - Nuffield College of Medicine

CESifo (Center for Economic Studies and Ifo Institute)

Andrew Leigh

Australian House of Representatives Parliament House ( email )

Canberra, 2600
Australia

Centre for Applied Macroeconomic Analysis, ANU ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

IZA ( email )

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