Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2010∗

We study the recent evolution of top incomes in Switzerland, analyzing both social security data on labor incomes and tax data on total income. The results show that in the last 20 years, the share of top incomes has risen, and the top 0.01% share even doubled, putting Switzerland similar to European countries for the top 1% group but closer to the U.S. for higher top incomes. However, top incomes also exhibited large variations over the business cycle. Using the synthetic control method, we close the gap in the data between 1993 and 2003, exploiting the fact that the Swiss cantons changed their tax system at different points in time. To understand the drivers of top incomes, we analyze the wealth and labor income distribution. Using social security data on top labor incomes which can be measured precisely over the whole time span, we suggest that labor incomes have become more important among top income earners in Switzerland. This is in line with findings for other developed countries: especially in the U.S., but also in European countries such as Germany or the Netherlands, labor incomes have been playing a major role in top incomes in recent decades. JEL Classification: D31, H24, C81 and N33