Distributional National Accounts DINA

Facundo Alvaredo Anthony B. Atkinson

Thomas Piketty Emmanuel Saez Gabriel Zucman

Meeting of Providers of OECD IDD Data OECD, Paris, February 18-19, 2016

• Envision a realistic plan and timetable for harmonized, annual, global “distributional national accounts”

• It will probably take a long time before we are able to develop official, consensual DINAs. For many years –decades– to come, inequality statistics will still be produced by various groups (academics, statistics institutes…).

• It took a long time (1910-1950s) before scholars could hand over the computation of NI and GDP to official institutes.

• It took a long time (1950-2000s) before national accounts were able to standardize stocks accounts (first consistent balance sheets in Germany released in 2010); still many missing countries.

• In the WTID/WID series, despite efforts, the units of observation, the income concepts and the Pareto interpolation techniques were never made fully homogeneous over time and across countries.

• In the WTID/WID series, attention is restricted to the top decile income share, rather than the entire distribution.

Overall DINA agenda:

• Producing annual estimates of the distribution of income and wealth using concepts of income and wealth that are consistent with the national accounts.

• Producing synthetic micro-files on an annual basis (income, wealth, age, gender, savings)

• DINA and associated micro-files expected to be as consistent as possible across time, countries, income and wealth definitions, and cover the whole distribution (and not only the top).

• DINA as a new tool to connect inequality and macro

• Defining a clear common conceptual framework

• Incorporating results from economic theory

• Developing statistics techniques to fruitfully use information from all available micro sources

• Estimating income/wealth growth rates for tiny groups of the distrib.

US: Piketty, Saez, Zucman France: Garbinti, Goupille, Piketty UK: Alvaredo, Atkinson

W2ID Working Paper 2015-01

Distributional National Accounts (DINA) Guidelines:

Concepts and Methods used in the W2ID *

Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty,

Emmanuel Saez, Gabriel Zucman

This version: September 2nd, 2015 (Preliminary and incomplete)

Section 1. Introduction

Section 2. Units of observation

Section 3. Income concepts

Section 4. Wealth concepts

Section 5. Basic imputation methods

Section 6. Reconciling wealth inequality sources

Section 7. Synthetic micro-files

Section 8. Countries/years with limited data

Section 9. Concluding comments

References

Appendix 1. List of template summary tables for country DINAs

Appendix 2. List of variables in prototype synthetic micro-files

* This document aims to synthesize the concepts and methods used in the W2ID

(World Wealth and Income Database).

• Benchmark unit of observation: the adult 20+ individual § In joint taxation countries we assume a 50-50% split § Whenever possible: also “equal-split inequality” (full

redistribution of resources between spouses) § Intermediate splitting hypothesis possible § Dependent children taken into account for the relevant

cash and in-kind transfers • Geographical scope: world/country/states

§ Synthetic micro-files: can be aggregated from country to world and regional level with the appropriate population weights

• Dimensions: income, wealth, age, gender, saving

Four income concepts

• Personal factor income

• Personal pre tax income (difficulty contribution-based social insurance and non-contribution based social assistance)

15

and corporate income taxes), but after deduction of "taxes on production" (D2), which

are defined as the sum of "taxes on products" (D21, including value added type taxes

and other product taxes) and "other taxes on production" (D29, including a large

number of various taxes such as property taxes on housing, land or buildings used by

households or corporations).

Primary income of the government sector (10% of national income according to the

example chosen in the SNA 2008 Sequence of accounts; see table 2) is the sum of

all revenues from taxes on production received by the government, plus the property

income received by the government, minus the property income paid by the

government. Finally, primary income of the non-profit sector (less than 1% of national

income according to the example chosen in the SNA 2008 Sequence of accounts;

see table 2) is the sum of the property income received by the non-profit sector,

minus the property income paid by the non-profit sector.

Section 3.2. Factor income

Personal factor income, which for simplicity we generally refer to as "factor income",

and which could also be labeled "personal primary income", or "personal market

income", is equal to the sum of all pretax personal income flows accruing directly or

indirectly to the individual owners of the production factors, labor and capital, before

taking into account the operation of the tax/transfer system, and before taking into

account the operation of the pension system.

19

Section 3.3. Pretax income

Personal pretax income, which for simplicity we generally refer to as "pretax income",

is equal to the sum of all pretax personal income flows accruing to the individual

owners of the production factors, labor and capital, before taking into account the

operation of the tax/transfer system, but after taking into account the operation of the

pension system.

The relation between pretax income, factor income and national income is presented

on table 4. The central difference between personal factor income and pretax

income is the treatment of pensions, which are counted on a contribution basis by

factor income and on a distribution basis by pretax income. We tend to favor the

"pretax income" concept, and we view our "pretax income" inequality series as our

benchmark series for pretax inequality. We stress however that the "factor income"

inequality series also provide useful and complementary information. To the extent

possible, both series should be estimated and computed for all countries.

The key reason why we tend to prefer the "pretax income" series is that pretax

income inequality is less strongly affected than factor income inequality by the age

structure of the population. As was mentioned above, factor income inequality is

artificially large in economies with a large retired population (even if the pension

system provides full replacement). In contrast, we aim to define pretax income so as

to satisfy the following neutrality condition: that is, in an hypothetical economy with

100% replacement rates for pensioners (whether this comes from a compulsory pay-

as-you-go pension system, or a voluntary funded system, or any combination

• Personal disposable income

• Personal “fiscal” income

Definition close to that of the tax law and to what people have in mind when thinking

about their personal income. Also, definition close to the ‘income control’ in the

WTID/WID.

23

Another difficulty has to do with the possible imbalance between contributions and

benefits. In the example provided in the SNA 2008 Sequence of accounts,

contributions and benefits are almost equal, so that pretax income (both in "pension

based" and "broad' definition) is relatively close to factor income and national income

(see table 4). However in some countries one might observe major imbalance

between contributions and benefits, partly for "good" economic reasons (e.g. it could

be that the pension system is temporarily accumulating surpluses or deficits, due to

demographic changes), and partly for "bad" accounting reasons (e.g. it could be that

the pension system is partly financed by general tax revenues rather than by social

contributions, or conversely that social contributions - as recorded by national

accounts - finance public spendings that are not counted as social insurance

benefits). In the latter case, it might be justify to adjust contributions to benefits in the

definition of pretax income presented on table 4. In future versions of these

guidelines we plan to further explore the patterns of contribution-benefit imbalances

and draw lessons regarding potential correction procedures.

Section 3.4. Disposable income

Disposable income, which could also be labeled "personal disposable income", is

equal to the sum of all income flows accruing to individuals, after taking into account

the operation of the tax and transfer system.

Personal factor income = 1 661 101% = Net national income of Total economy (B5n, S1) 1 642 100% - Property income (D4) received by General government Sector (S13) - 22 -1% + Property income (D4) paid by General government Sector (S13) 42 3% - Property income (D4) received by NPSIH (non-profit) Sector (S15) - 7 0% + Property income (D4) paid by NPSIH (non-profit) Sector (S15) 6 0%

Personal factor income = 1 661 101% = Primary income of Household Sector (B5n, S14) 1 358 83% + Primary income of Corporations Sector (B5n, S11+S12) 112 7% + Taxes on production (net) (D2-D3) received by General govt. Sector (S13) 191 12%

Personal factor income = 1 661 101% = Factor labor income 1 341 82% + Factor capital income 320 19%

Personal factor labor income = 1 341 82% = Compensation of employees (D1) received by Household Sector (S1) 1 154 70% + Labor share (70%) of net mixed income (B3n + net D45, S14) 33 2% + Imputed Taxes on production (net) (in proportion to income) 154 9%

Factor capital income = 320 19% = Capital share (30%) of net mixed income (B3n + net D45, S14) 14 1% + Net operating surplus (housing rents) of Household Sector (B2n, S14) 69 4% + Property income (D4 except D45) received by Household Sector (S14) 102 6% - Property income (D4 except D45) paid by Household Sector (S14) - 14 -1% + Undistributed profits (Primary income of Corporations (B5n, S11+S12)) 112 7% + Imputed Taxes on production (net) (in proportion to income) 37 2%

Table 3. Personal factor income (DINA)

Computations using SNA 2008 Sequence of Accounts (see DINA_Income_Wealth_Concepts.xls)

Net national income of Total economy (B5n, S1) 1 642 100%

Personal pretax income (pension-based definition) = 1 639 100% = Factor Income 1 661 101% - Pension contributions (D6111+D6121+D6131+D6141, S14) - 309 -19% - Investment income payable to pension entitlements (D442, S14) - 8 0% + Pension benefits (D6211+D6221, S14) 295 18%

Personal pretax income (broad definition) = 1 652 101% = Factor income 1 661 101% - Net social contributions (employer and households) (D61, S14) - 333 -20% - Investment income payable to pension entitlements (D442, S14) - 8 0% + Social insurance benefits (D621+D622, S14) 332 20%

Personal pretax income (broad definition) = 1 652 101% = Pretax labor income 1 332 81% + Pretax capital income 320 19%

Pretax labor income = 1 332 81% = Factor labor income 1 341 82% - Net social contributions (employer and households) (D61, S14) - 333 -20% + Social insurance income (labor share) (in proportion to contributions) 324 20%

Pretax capital income = = Factor capital income 320 19% - Investment income payable to pension entitlements (D442, S14) - 8 0% + Social insurance income (capital share) (in proportion to contributions) 8 0%

Social insurance benefits (D621+D622, S14) 332 20% = Social security benefits in cash (D621, S14) 53 3% + Other social insurance benefits (D622, S14) 279 17%

Table 4. Personal pretax income (DINA)

Computations using SNA 2008 Sequence of Accounts (see DINA_Income_Wealth_Concepts.xls)

N t ti l i f T t l (B5 S1) 1 642 100%

Table 5. Disposable income (DINA)

Net national income of Total economy (B5n, S1) 1 642 100%

Disposable income (cash income) = 1 300 79% = Pretax Income (simplified definition) 1 652 101% - Taxes on production (net) (D2-D3) received by General govt. Sector (S13) - 191 -12% - Current taxes on income and wealth (D5) received by General govt. (S13) - 213 -13%( ) y g ( ) + Social assistance benefits in cash (D623, S14) 52 3%

Disposable income (cash income + in-kind transfers) = 1 515 92% = Pretax Income (simplified definition) 1 652 101% - Taxes on production (net) (D2-D3) received by General govt. Sector (S13) - 191 -12% Current taxes on income and wealth (D5) received by General govt (S13) 213 13% - Current taxes on income and wealth (D5) received by General govt. (S13) - 213 -13% + Social assistance benefits in cash (D623, S14) 52 3% + Social transfers in kind (D63, S14) 215 13%

Disposable income (cash income + in-kind transfers + collective expenditure) = 1 684 103% = Pretax Income (simplified definition) 1 652 101% - Taxes on production (net) (D2-D3) received by General govt. Sector (S13) - 191 -12% - Current taxes on income and wealth (D5) received by General govt. (S13) - 213 -13% + Social assistance benefits in cash (D623, S14) 52 3% + Social transfers in kind (D63, S14) 215 13% + Collective consumption expenditure (P32, S13+S15) 169 10%

Computations using SNA 2008 Sequence of Accounts (see DINA_Income_Wealth_Concepts.xls)

Basic imputations methods • High quality administrative micro-data and combination with

surveys • Upscale incomes to the three income concepts

§ Pragmatic but clear and explicit imputations (proportional upgrading, use of other available information, use legal information)

§ Use of income and wealth surveys Synthetic micro-files

§ Distribution according to the four income concepts § Univariate (no information on joint distributions) § Joint distribution

o Simple functional form for the copula distribution G(yl,yk) such as the bivariate Pareto (Atkinson et al.)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

180%

20 30 40 50 60 70 80 90

Avr

age

inco

me

or c

apita

l by

age

(% a

vera

ge 1

8+)

Figure 1. Age-income and age-wealth profiles (France DINA 2006)

Total factor income

Factor labor income

Factor capital income

Capital (private wealth)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

180%

20 30 40 50 60 70 80 90

Avr

age

inco

me

or c

apita

l by

age

(% a

vera

ge 2

1+)

Figure 2. Age-income and age-wealth profiles (DINA 2006)

Pretax Labor income

Pretax Total income

Pretax Capital income

Capital

Total pop. 50 366 272 33 551 € 24 284 € 182 572 €0 503 725 0 € 0 € 0 € 0 € 0 € 0 €1 503 643 0 € 0 € 0 € 0 € 0 € 0 €2 503 616 0 € 0 € 0 € 0 € 0 € 0 €3 503 762 0 € 0 € 0 € 0 € 0 € 0 €4 503 634 0 € 0 € 0 € 0 € 0 € 0 €5 503 697 0 € 0 € 0 € 0 € 0 € 0 €6 503 669 0 € 0 € 0 € 0 € 0 € 0 €7 503 768 0 € 5 € 0 € 2 € 0 € 0 €8 503 566 11 € 19 € 12 € 40 € 0 € 0 €9 503 621 30 € 45 € 79 € 143 € 0 € 0 €10 503 861 64 € 91 € 235 € 403 € 0 € 0 €11 503 558 122 € 166 € 588 € 832 € 0 € 0 €12 503 665 219 € 287 € 1 109 € 1 398 € 0 € 0 €13 503 650 371 € 463 € 1 706 € 2 017 € 0 € 1 €14 503 521 560 € 731 € 2 342 € 2 678 € 16 € 72 €15 504 012 931 € 1 186 € 3 021 € 3 365 € 115 € 178 €16 503 429 1 453 € 1 652 € 3 686 € 4 017 € 231 € 307 €17 503 704 1 818 € 1 951 € 4 349 € 4 671 € 362 € 455 €18 503 514 2 084 € 2 193 € 4 997 € 5 293 € 527 € 632 €19 503 677 2 302 € 2 400 € 5 541 € 5 867 € 742 € 871 €20 503 738 2 505 € 2 605 € 6 193 € 6 535 € 988 € 1 128 €21 503 598 2 700 € 2 793 € 6 867 € 7 187 € 1 267 € 1 446 €22 503 625 2 888 € 2 992 € 7 511 € 7 810 € 1 613 € 1 789 €23 504 118 3 087 € 3 195 € 8 104 € 8 388 € 1 989 € 2 205 €24 503 303 3 305 € 3 413 € 8 669 € 8 944 € 2 421 € 2 668 €25 503 747 3 525 € 3 632 € 9 220 € 9 475 € 2 928 € 3 210 €26 503 564 3 738 € 3 852 € 9 727 € 9 968 € 3 509 € 3 770 €27 503 658 3 967 € 4 093 € 10 201 € 10 431 € 4 053 € 4 452 €28 503 752 4 230 € 4 370 € 10 666 € 10 891 € 4 829 € 5 271 €29 503 549 4 507 € 4 661 € 11 116 € 11 359 € 5 724 € 6 156 €30 503 813 4 833 € 4 986 € 11 621 € 11 862 € 6 601 € 7 134 €31 503 503 5 148 € 5 319 € 12 087 € 12 312 € 7 661 € 8 327 €32 503 623 5 496 € 5 681 € 12 545 € 12 777 € 9 014 € 9 770 €33 503 699 5 871 € 6 079 € 13 013 € 13 248 € 10 542 € 11 323 €34 503 744 6 290 € 6 506 € 13 486 € 13 718 € 11 972 € 12 856 €35 503 591 6 729 € 6 965 € 13 940 € 14 173 € 13 811 € 14 853 €36 503 720 7 210 € 7 475 € 14 412 € 14 661 € 16 046 € 17 555 €37 503 558 7 753 € 8 059 € 14 909 € 15 140 € 19 195 € 20 977 €38 503 677 8 373 € 8 723 € 15 371 € 15 590 € 22 838 € 25 206 €39 503 683 9 074 € 9 453 € 15 812 € 16 016 € 27 631 € 30 740 €40 503 868 9 853 € 10 261 € 16 219 € 16 422 € 34 346 € 38 654 €41 503 741 10 662 € 11 096 € 16 622 € 16 823 € 42 968 € 47 947 €42 503 462 11 552 € 12 005 € 17 027 € 17 224 € 52 929 € 56 967 €43 503 633 12 487 € 12 966 € 17 415 € 17 613 € 60 402 € 63 076 €44 503 605 13 466 € 13 959 € 17 811 € 17 999 € 65 319 € 67 765 €45 503 844 14 455 € 14 976 € 18 180 € 18 359 € 70 018 € 72 013 €46 504 079 15 509 € 16 045 € 18 535 € 18 699 € 73 746 € 75 603 €47 503 130 16 593 € 17 196 € 18 869 € 19 044 € 77 333 € 78 750 €48 503 686 17 782 € 18 375 € 19 216 € 19 385 € 80 342 € 81 808 €49 503 669 18 980 € 19 596 € 19 555 € 19 721 € 83 156 € 84 555 €50 503 676 20 203 € 20 807 € 19 891 € 20 060 € 86 153 € 87 489 €51 504 280 21 426 € 22 053 € 20 226 € 20 398 € 88 785 € 89 952 €52 503 125 22 676 € 23 291 € 20 565 € 20 735 € 91 197 € 92 613 €53 503 607 23 905 € 24 484 € 20 900 € 21 070 € 93 838 € 95 061 €

Average pretax income

Lower disposable

income threshold

Average disposable

income

Lower net wealth

threshold

Average net wealth

Table E2. Detailed income distribution table (template table based upon data from France 2010)

Percentile p

Number of adult

individuals 20-yr-+ in percentile

Percentiles of factor income

Percentiles of pretax income

Percentiles of disposable income

Percentiles of net wealth

Lower factor

income threshold

Average factor

income

Lower pretax income

threshold

Total pop. 50 366 272 33 551 € 24 284 € 182 572 €0 503 725 0 € 0 € 0 € 0 € 0 € 0 €1 503 643 0 € 0 € 0 € 0 € 0 € 0 €2 503 616 0 € 0 € 0 € 0 € 0 € 0 €3 503 762 0 € 0 € 0 € 0 € 0 € 0 €4 503 634 0 € 0 € 0 € 0 € 0 € 0 €5 503 697 0 € 0 € 0 € 0 € 0 € 0 €6 503 669 0 € 0 € 0 € 0 € 0 € 0 €7 503 768 0 € 5 € 0 € 2 € 0 € 0 €8 503 566 11 € 19 € 12 € 40 € 0 € 0 €9 503 621 30 € 45 € 79 € 143 € 0 € 0 €10 503 861 64 € 91 € 235 € 403 € 0 € 0 €11 503 558 122 € 166 € 588 € 832 € 0 € 0 €12 503 665 219 € 287 € 1 109 € 1 398 € 0 € 0 €13 503 650 371 € 463 € 1 706 € 2 017 € 0 € 1 €14 503 521 560 € 731 € 2 342 € 2 678 € 16 € 72 €15 504 012 931 € 1 186 € 3 021 € 3 365 € 115 € 178 €16 503 429 1 453 € 1 652 € 3 686 € 4 017 € 231 € 307 €17 503 704 1 818 € 1 951 € 4 349 € 4 671 € 362 € 455 €18 503 514 2 084 € 2 193 € 4 997 € 5 293 € 527 € 632 €19 503 677 2 302 € 2 400 € 5 541 € 5 867 € 742 € 871 €20 503 738 2 505 € 2 605 € 6 193 € 6 535 € 988 € 1 128 €21 503 598 2 700 € 2 793 € 6 867 € 7 187 € 1 267 € 1 446 €22 503 625 2 888 € 2 992 € 7 511 € 7 810 € 1 613 € 1 789 €23 504 118 3 087 € 3 195 € 8 104 € 8 388 € 1 989 € 2 205 €24 503 303 3 305 € 3 413 € 8 669 € 8 944 € 2 421 € 2 668 €25 503 747 3 525 € 3 632 € 9 220 € 9 475 € 2 928 € 3 210 €26 503 564 3 738 € 3 852 € 9 727 € 9 968 € 3 509 € 3 770 €27 503 658 3 967 € 4 093 € 10 201 € 10 431 € 4 053 € 4 452 €28 503 752 4 230 € 4 370 € 10 666 € 10 891 € 4 829 € 5 271 €29 503 549 4 507 € 4 661 € 11 116 € 11 359 € 5 724 € 6 156 €30 503 813 4 833 € 4 986 € 11 621 € 11 862 € 6 601 € 7 134 €31 503 503 5 148 € 5 319 € 12 087 € 12 312 € 7 661 € 8 327 €32 503 623 5 496 € 5 681 € 12 545 € 12 777 € 9 014 € 9 770 €33 503 699 5 871 € 6 079 € 13 013 € 13 248 € 10 542 € 11 323 €34 503 744 6 290 € 6 506 € 13 486 € 13 718 € 11 972 € 12 856 €35 503 591 6 729 € 6 965 € 13 940 € 14 173 € 13 811 € 14 853 €36 503 720 7 210 € 7 475 € 14 412 € 14 661 € 16 046 € 17 555 €37 503 558 7 753 € 8 059 € 14 909 € 15 140 € 19 195 € 20 977 €38 503 677 8 373 € 8 723 € 15 371 € 15 590 € 22 838 € 25 206 €39 503 683 9 074 € 9 453 € 15 812 € 16 016 € 27 631 € 30 740 €40 503 868 9 853 € 10 261 € 16 219 € 16 422 € 34 346 € 38 654 €41 503 741 10 662 € 11 096 € 16 622 € 16 823 € 42 968 € 47 947 €42 503 462 11 552 € 12 005 € 17 027 € 17 224 € 52 929 € 56 967 €43 503 633 12 487 € 12 966 € 17 415 € 17 613 € 60 402 € 63 076 €44 503 605 13 466 € 13 959 € 17 811 € 17 999 € 65 319 € 67 765 €45 503 844 14 455 € 14 976 € 18 180 € 18 359 € 70 018 € 72 013 €46 504 079 15 509 € 16 045 € 18 535 € 18 699 € 73 746 € 75 603 €47 503 130 16 593 € 17 196 € 18 869 € 19 044 € 77 333 € 78 750 €48 503 686 17 782 € 18 375 € 19 216 € 19 385 € 80 342 € 81 808 €49 503 669 18 980 € 19 596 € 19 555 € 19 721 € 83 156 € 84 555 €50 503 676 20 203 € 20 807 € 19 891 € 20 060 € 86 153 € 87 489 €51 504 280 21 426 € 22 053 € 20 226 € 20 398 € 88 785 € 89 952 €52 503 125 22 676 € 23 291 € 20 565 € 20 735 € 91 197 € 92 613 €53 503 607 23 905 € 24 484 € 20 900 € 21 070 € 93 838 € 95 061 €

Average pretax income

Lower disposable

income threshold

Average disposable

income

Lower net wealth

threshold

Average net wealth

Table E2. Detailed income distribution table (template table based upon data from France 2010)

Percentile p

Number of adult

individuals 20-yr-+ in percentile

Percentiles of factor income

Percentiles of pretax income

Percentiles of disposable income

Percentiles of net wealth

Lower factor

income threshold

Average factor

income

Lower pretax income

threshold

99.992 596 3 193 306 € 3 334 714 € 1 522 239 € 1 606 414 € 34 800 000 € 36 300 000 €99.993 411 3 500 309 € 3 657 988 € 1 650 506 € 1 724 779 € 38 200 000 € 40 100 000 €99.994 504 3 830 937 € 4 056 416 € 1 802 877 € 1 895 493 € 42 000 000 € 44 500 000 €99.995 504 4 316 785 € 4 617 444 € 1 998 960 € 2 136 060 € 47 600 000 € 50 900 000 €99.996 503 4 959 455 € 5 467 883 € 2 287 483 € 2 527 626 € 54 500 000 € 60 100 000 €99.997 502 5 974 735 € 6 460 247 € 2 814 833 € 3 258 277 € 66 400 000 € 72 200 000 €99.998 503 7 197 656 € 8 668 643 € 3 888 071 € 4 808 121 € 79 300 000 € 96 600 000 €99.999 505 11 000 000 € 20 700 000 € 5 855 208 € 10 900 000 € 123 000 000 € 233 000 000 €

Most capital income is missed by tax data

0%

5%

10%

15%

20%

25%

30%

35%

1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

% o

f fa

cto

r-p

rice

na

tion

al i

nco

me

From tax-reported to total capital income

Didivends, interest, rents & profits reported on tax returns

Imputed rents

Retained earnings

Income paid to pensions & insurance

Non-filers & unreported sole

prop. profits

Corporate income tax

2/3 missed by tax data

A growing fraction of labor income ismissed by tax data

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

% o

f tot

al N

IPA

com

pens

atio

n of

em

ploy

ees

From taxable to total employee compensation

Reported taxable wages

Health benefits

Employer payroll taxes Other

Pension contributions 1/4 missed by tax data

How we allocate taxes

We follow standard tax incidence results:

Labor taxes fall on labor; capital taxes on capital (and corporatetax on all capital assets: Harberger 1962)

Reasonable if Y = F (K , L) has elasticity of substitution � >>labor supply elasticity eL and capital supply elasticity eK

Cross-country and time-series evolution of ↵ = rK/Y and� = K/Y broadly consistent with view that � > 1 and eL and eKrelatively small in the long run � eK

But this is uncertain ! will revisit if needed

How we construct micro-measures ofcapital income matching macro totals

1. Construct micro-measures of wealth

Follow Saez and Zucman 2014: category by category, pragmaticapproach

Delivers micro-measures of family wealth matching macro totals

Split capital 50/50 among spouses

2. Derive micro-measures of pre-tax capital income

Compute aggregate pre-tax rates of return for each asset classthat reconcile NIPA income flows with Flow of Funds wealth

Apply these rates of return to individual assets

How we construct distributional estimatesof national labor income

1. Start from reported wages; split income of spouses using W2 forms

2. Employer payroll taxes: apply schedule, e.g., in 2015:

Medicare: 1.45%

Social Security: 7.2% capped at $118,500

Unemployment insurance: vary by state

3. Pension and health insurance contributions:

Available on W2 forms since 1999 for pensions, since 2012 forhealth

Before, assume same distribution

National income is more concentratedthan tax income

25%

30%

35%

40%

45%

50%

55%

1917

1922

1927

1932

1937

1942

1947

1952

1957

1962

1967

1972

1977

1982

1987

1992

1997

2002

2007

2012

% o

f tot

al in

com

e Top 10% pre-tax income shares

IRS family market income (Piketty-Saez)

National income per adult (DINA)

This figure displays the share of total pre-tax national income earned by top 10% adult income earners and the share of total IRS market income earned by top 10% family tax units. Source: Appendix Tables XX.

Less true for top 1%

0%

5%

10%

15%

20%

25%

1913

1918

1923

1928

1933

1938

1943

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

2008

2013

% o

f tot

al in

com

e Share of national income earned by top 1% adult income earners

IRS family market income (Piketty-Saez)

National income per adult (DINA)

This figure displays the share of total pre-tax national income earned by top 1% adult income earners and the share of total IRS market income earned by top 1% tax units. Source: Appendix Tables XX.

DINAs make it possible to computegrowth rates consistent with macro totals

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

Ave

rage

inco

me

in c

onst

ant 2

012

dolla

rs

Real average national income: Full adult population vs. bottom 90%

Real values are obtained by using the national income deflator and expressed in 2012 dollars. Source: Appendix Tables XX.

Bottom 90% adults

All adults

2.0%

2.0%

1.4%

0.7%

The top 10% has grown three timesfaster than the bottom 90% since 1980

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

2014

Bot

tom

90%

real

ave

rage

nat

iona

l inc

ome

Top

10%

real

ave

rage

nat

iona

l inc

ome

Real average national income of bottom 90% and top 10%

adults

Real values are obtained by using the national income deflator and expressed in 2012 dollars. Source: Appendix Tables XX.

Bottom 90% (right axis)

Top 10% (left axis)

1.9%

2.0%

2.3%

0.7%