TY  - JOUR
AU  - Slemrod,Joel
TI  - Taxation and Inequality: A Time-Exposure Perspective
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3999
PY  - 1992
Y2  - February 1992
UR  - http://www.nber.org/papers/w3999
L1  - http://www.nber.org/papers/w3999.pdf
N1  - Author contact info:
Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu
M1  - published as Joel B. Slemrod. "Taxation and Inequality: A Time-Exposure Perspective," in James M. Poterba, editor, "Tax Policy and the Economy, Volume 6" The MIT Press (1992)

AB  - Conclusions about inequality based on cross-sectional snapshots of annual income can give a misleading picture of the inequality of a more permanent notion of income, due to the mobility of individuals across annual income classes. This paper reassesses some of the issues about taxation and inequality using two longitudinal tax return data bases. Replacing annual income with "time-exposure" income, defined as average real income over the period, does not significantly reduce the measured degree of inequality in the 1979-1985 period, although the fraction of income received by the lowest increase substantially. The procedure does, though, reduce the contribution to inequality of certain sources of income such as capital gains and increase the contribution of other sources such as interest and dividends. There is no systematic evidence that the comparison of snapshots between the 1967-1973 and 1979-1985 periods overstates the growth in inequality of a more permanent notion of income. The inequality of pre-tax income has been increasing steadily in the past two decades. Changes in income taxation have neither stemmed nor contributed significantly to this trend; since 1980 the contribution of the income tax to decreasing inequality has declined slightly.
ER  -