The Evolution of Top Incomes: A Historical and International Perspective

This paper summarizes the main findings and perspectives emerging from a collective research project on the dynamics of income and wealth distribution. The primary objective of this project is to construct a high-quality, longrun, international database on income and wealth concentration, using historical tax statistics. The resulting database now includes annual series covering most of the twentieth century for a number of (mostly Western) countries. The main motivation for this project comes from a general dissatisfaction with existing income inequality databases. Existing international databases display little homogeneity over time or across countries. They cover only a few isolated years per country, generally restricted to the post-1970 or post-1980 period. They almost never offer any decomposition of income inequality into a labor-income and a capitalincome component. Economic mechanisms can be very different for the distribution of labor income (demand and supply of skills, labor market institutions, etc.) and the distribution of capital income (capital accumulation, credit constraints, inheritance law and taxation, etc.), so that it is difficult to test any of these mechanisms using existing data. The fact that existing data are not long run is also problematic, because structural changes in income and wealth distribution often span several decades. In order to properly understand such changes, one needs to be able to put them into broader historical perspective. Our database also suffers from important limitations. In particular, our long-run series are generally confined to top income and wealth shares and contain little information about bottom segments of the distribution. However, our data are annual, long-run time series; they are fairly homogenous across countries; and they are also broken down by income source. Hence, they offer a unique opportunity to understand the dynamics of income and wealth distribution and the interplay between inequality and growth.