Long-run trends in top income shares: The role of income and population growth

Abstract

This paper studies the sensitivity of long-run trends in top income shares to differences in top-share measures. While the standard measure fixes a share of the population, we define alternatives that allow variation in both incomes and size of the top group based on defining absolute income thresholds. In an application to United States data, we find that top income share trends over the past century vary somewhat depending on the measure used. Allowing top groups to increase in size after 1980 along with overall economic growth results in a larger increase of top income shares. The historical drops before WWII are sensitive to the choice of income deflator: using GDP inflates interwar top income shares but using CPI deflates them. Altogether, these results recommend using complementary approaches to defining top income groups when measuring long-term top income share trends.