IZA DP No. 4426: Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data
revised version published in: Review of Economics and Statistics, 2012, 94 (2), 371–388
Although the majority of research on US income inequality trends is based on public-use March CPS data, a new wave of research using IRS tax return data reports substantially higher levels of inequality and faster growing trends. We show that these apparently inconsistent estimates are largely reconciled if the inequality measure and the income distribution are defined in the same way. Using internal CPS data for 1967-2006, we closely match IRS data-based estimates of top income shares reported by Piketty and Saez (2003). Our results imply that any inequality increases since 1993 are concentrated among the top 1 percent of the distribution.