ESTIMATES OF INCOME INEQUALITY ARE BIASED OR MISINTERPRETED

  • Ivan KITOV Russian Academy of Sciences

Abstract

We consider definitions and measuring procedures of personal income used by three U.S. agencies as
well as the evolution of household size distribution and reveal major quantitative inconsistencies in the reported
figures of personal and household inequality. The problem with the inequality estimates reported by the Internal
Revenue Service consists in the changing proportion of people with lower incomes. The increasing proportion of
low-income population is misinterpreted as the growth in income inequality. The Census Bureau provides
personal income distributions scaled from a small subset of households to the whole population. Surprisingly, the
Gini coefficient estimated from the Census Bureau data for people with income does not depend on the dramatic
change in income definition in 1977, when the share of working age population with (likely low) incomes
increased by 10%. When corrected to the population without income, the Gini coefficient demonstrates a
significant decrease in 1978. The changing composition of households in the U.S. is the effect explaining the
reported increase in Gini coefficient for households since 1967. When corrected for actual decrease in the
average household size the relevant Gini coefficient returns to that of personal incomes. According to the Census
Bureau, the latter coefficient has been hovering in a very narrow range between 0.50 and 0.51 since 1974.
Evaluating the evolution of labour and capital shares of the U.S. personal income reported by the Bureau of
Economic Analysis we found that the increasing share of income of the top 1% households does not affect the
labour share income. The growth in the income share of richest families is related to the increasing share of the
consumption of fixed capital which is converted into private money though the reduction in taxes on production
and imports.

Author Biography

Ivan KITOV, Russian Academy of Sciences
Institute for the Dynamics of the Geospheres

References

[1] Kitov, I. (2009). Mechanical model of personal income distribution, Working Papers 110, ECINEQ, Society for the Study of Economic Inequality
[2] Piketty, T. (2014).Capital in the Twenty-First Century, Harvard University Press, pp. 696.
*** Bureau of Economic Analysis (2012). National data. GDP & Personal Income. US Department of Commerce. Retrieved on December 25, 2012 from http://bea.gov/iTable/index_nipa.cfm
*** Census Bureau (2006). Design and Methodology. Current Population Survey. Technical Paper 66, US Department of Commerce, Economics and Statistics Administration. Retrieved on January 01, 2013 from http://www.census.gov/prod/2006pubs/tp-66.pdf
*** Census Bureau (2012). Comparability of Current Population Survey Income Data with other Data, US Department of Commerce, Economics and Statistics Administration. Retrieved on December 25, 2012 from http://www.census.gov/hhes/www/income/data/comparability/index.html
*** Internal Revenue Service (2012). SOI Tax Stats - Individual Statistical Tables by Size of Adjusted Gross Income. Retrieved on December 25, 2012 from http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Statistical-Tables-by-Size-of-Adjusted-Gross-Income
Published
2016-10-20
How to Cite
KITOV, Ivan. ESTIMATES OF INCOME INEQUALITY ARE BIASED OR MISINTERPRETED. Theoretical and Practical Research in the Economic Fields, [S.l.], v. 5, n. 2, p. 142-152, oct. 2016. ISSN 2068-7710. Available at: <https://journals.aserspublishing.eu/tpref/article/view/258>. Date accessed: 22 jan. 2022.
Section
Theoretical and Practical Research in the Economic Fields

Keywords

income inequality, Gini coefficient, households