How Pronounced Is the U-Curve? Revisiting Income Inequality in the United States, 1917-1945

56 Pages Posted: 13 Jun 2017 Last revised: 5 Aug 2018

Vincent Geloso

Bates College

Phillip Magness

Berry College - Department of Economics

John Moore

Northwood University

Philip Schlosser

Wayne State University

Date Written: February 4, 2018

Abstract

In this article, we offer a revision to the top income share series produced by Piketty and Saez (2003) for the United States, focusing upon the period prior to and including the Second World War. The inequality estimates for these years form the left-side of a century-long U-curve that has achieved widespread acceptance in the literature. However, a number of issues deriving from the limitations of tax data in first half of the 20th century likely distort the magnitude and shape of depicted distributional patterns in this period. By revisiting available source data from the IRS, we supplement the PikettySaez series for 1917-1945 with improved measures of deductible income and correct a number of distortions that arise from data construction issues within the original estimates. The cumulative effect of our corrections is substantial, including a five percentage point reduction on average to Piketty Saez’s top 10% income share estimates prior to 1944. Our corrections change both the shape and magnitude of the U-curve. The curve is now shallower largely because the levelling depicted during World War II has been overstated vis-a-vis a more gradual decline attributable to the Depression. This finding has important implications for the interpretation of the fall and rise of inequality in the United States.

Keywords: Inequality, Top Incomes, US Economic History

JEL Classification: H2, N32

Suggested Citation

Geloso, Vincent and Magness, Phillip and Moore, John and Schlosser, Philip, How Pronounced Is the U-Curve? Revisiting Income Inequality in the United States, 1917-1945 (February 4, 2018). Available at SSRN: https://ssrn.com/abstract=2985234 or http://dx.doi.org/10.2139/ssrn.2985234

Vincent Geloso

Bates College ( email )

Department of Economics
Lewiston, ME
United States

Phillip Magness (Contact Author)

Berry College - Department of Economics ( email )

Mount Berry, GA 30149
United States

John Moore

Northwood University ( email )

United States

Philip Schlosser

Wayne State University ( email )

656 W. Kirby
Detroit, MI 48202
United States

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