Contents

7.1. Introduction 471

7.1.1 From the Kuznets Series, to Household Surveys, and Back Again 471

7.1.2 OutlineoftheChapter 473

7.1.2.1 ToplncomesharesandotherMeasuresofLong-RunIncomeInequality 474

7.1.2.2 Long-Run Trends in the Wealth Distribution 474

7.1.2.3 SearchingforExplanations 475

7.1.3 WhatIsThisChapterNotAbout? 476

7.2.

7.2.1 Methods and Data in the Top Income Literature 479

7.2.1.1 Tax Statistics and the Definition of Income 480

7.2.1.2 ReferenceTotalforthePopulation 483

7.2.1.3 Reference Total for Income 485

7.2.1.4 Interpolation Techniques and the Interpretation of the Pareto Coefficient 488

7.2.1.5 TaxAvoidanceandTaxEvasion 489

7.2.1.6 OtherIssues 491

7.2.1.7 So Can We Trust the Top Income Data? 491

7.2.2 The Evidence and What We Learn 492

7.2.2.1 Common Trends or Separate Experiences? 492

7.2.2.2 The Importance of Developments Within the Top Decile 496

7.2.2.3 The Importance of Capital Incomes and Capital Gains 498

7.2.3 The Relation Between Top Income Data and Other Measures of Inequality 502

7.2.3.1 Comparing Tax-Based and Survey-Based Estimates of Top Income Shares 502

7.2.3.2 Theoretical and Empirical Relationship Between Top Shares and Overall Inequality Measures 503

7.2.3.3 Other Series over Long-Run Inequality: Wages, Factor Prices, and Life Prospects 507

7.2.4 IncomeInequalityovertheLongRun—TakingStockofWhatWeKnow 510

7.3. Long-Run Trends in Wealth Inequality 511

7.3.1 Data and Measurement 512

7.3.1.1 The Wealth Holding Unit 513

7.3.1.2 The Concept of Wealth 513

7.3.1.3 Measuring Historical Wealth Inequality 517

7.3.1.4 Tax Avoidance and Evasion 518

7.3.2 Evidence on Long-Run Trends in Wealth Inequality 519

7.3.2.1 Country-Specific Evidence 520

7.3.2.2 Cross-Country Trends in Long-Run Wealth Concentration 540

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7.3.3 TheCompositionofWealth 543

7.3.4 Concluding Discussion: What Do the Long-Run Wealth InequalityTrends Tell Us? 544

7.4. DeterminantsofLong-RunTrendsinInequality 546

7.4.1 A First Look at Inequality Trends, Structural Changes, and Shocks 548

7.4.1.1 What About the Kuznets Curve? 551

7.4.2 Combining Wage Earnings and Wealth 552

7.4.2.1 Explaining the Drop over the First Half of the Twentieth Century: Wealth Shocks

and the Cumulative Effects of Taxes 554

7.4.3 Explaining Increasing Top Wages: Executive Compensation, Superstar Effects,

and the Possibility of Changing Norms 557

7.4.4 EconometricEvidenceonDeterminantsofTopIncomeShares 562

7.4.4.1 Determinants of Inequality: Correlations over the Long Run 562

7.4.4.2 The Effect of Top Tax Rates on Top Incomes 565

7.4.4.3 Political and Institutional Factors and the Impact of Crises 566

7.4.5 What Do We Learn? 566

7.5.

7.5.1 Going Forward 569

Acknowledgments 570

Appendix 570

References 581