Inequality and Mobility Using IRS and SSA Administrative Records

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Swissotel Chicago, Zurich E
Hosted By: American Economic Association
  • Chair: David Johnson, University of Michigan

Gender, Marriage, and the Intergenerational Transmission of Economic Status

Pablo Mitnik
,
Stanford University
Victoria Bryant
,
Internal Revenue Service
Michael Weber
,
Internal Revenue Service
David Grusky
,
Stanford University

Abstract

We use the Statistics of Income Mobility (SOI-M) Panel, and nonparametric methods, to study the role that gender and marriage play in the intergenerational transmission of economic status. We find that, as measured by the intergenerational elasticity (IGE) of family income, the degree to which economic status is transmitted across generations does not differ much between men and women. The channels by which this transmission is accomplished do, however, vary markedly across genders. We distinguish among three different channels: the child raised in a higher-income family may have higher earnings or personal income, may have increased chances of marrying (and staying married), and may have a spouse with higher earnings or income. The first channel, as indexed by the earnings IGE, is more important for men than for women. This difference in IGEs results in large part from assortative mating and from the negative income elasticity of labor supply for married women. The other two channels are, by contrast, more important for women than for men: That is, the marriage-probability elasticity and the earnings-from-spouse elasticity (with respect to parental income) are larger for women than for men, which implies that the transmission of economic status is disproportionately “mediated” by marriage for women. Using a novel approach to decompose a nonparametrically-estimated IGE into the contributions of the three channels, we show that the direct pathway (via one’s own earnings) accounts for the bulk of the family-income IGE for men (61 percent), whereas the indirect pathway (via marriage and earnings conditional on marriage) accounts for the bulk of the IGE for women (71 percent). We conclude by discussing the tax-policy implications of our findings.

Sorting and Geographic Variation in Intergenerational Mobility

Jonathan Rothbaum
,
U.S. Census Bureau

Abstract

Where children grow up matters for their long-term outcomes. However, sorting, or differences in parent characteristics across locations, biases the best causal estimates of mobility in the literature. I improve on these by estimating sorting-adjusted causal effects of place in the United States. I show that much of the variation across regions is due to sorting. Controlling for sorting reduces the variance across Census regions, divisions, and states by 74, 50, and 39 percent respectively.

Measuring Life-Cycle Mobility of Children and Their Parents

Gerald Auten
,
U.S. Treasury Department
Geoffrey Gee
,
U.S. Treasury Department
Nicholas Turner
,
U.S. Department of the Treasury

Abstract

Separate literatures consider the life-cycle of income, inter- and intra-generational income mobility, income volatility and income inequality. This paper merges these literatures using a new dataset based on the income tax records of a large sample of individuals over a 25-year period. This dataset allows us to examine the life-cycle income mobility of children of different income groups and also the income mobility of their parents over a long time period. The income position of children is measured by the income of the parents in 1987, and then by their own income over the next 25 years. The income position of their parents is also followed over this period. Individuals are tracked separately, even if they change households or marry a different person. Data from individual income tax returns is supplemented by information returns (including W-2’s, 1099’s, K-1’s and other similar information returns) to measure the income of non-filers. The use of information returns allows us to address attrition problems associated with non-filers. Income is adjusted for family size so that relative economic welfare is comparable as family status changes over time. The analysis examines both the typical inter-generational rank-rank relationship and the dispersion of mobility outcomes. Given the life cycle of income and income volatility, we might expect that many more than 20 percent of individuals are in the top or bottom 20 percent of the distribution. This paper investigates the extent to which that is true. In addition, the analysis considers how mobility is affected by family status, age, occupation and other factors that may have implications for public policy.

The Sensitivity of United States Top Income Shares in Tax Record Data to More Comprehensive Measures of Income

Jeffrey Larrimore
,
Federal Reserve Board
Richard V. Burkhauser
,
Cornell University and the University of Melbourne
Gerald Auten
,
U.S. Treasury Department
Philip Armour
,
RAND Corporation

Abstract

Access to Internal Revenue Service (IRS) tax records improve researchers’ ability to track U.S. income and inequality, especially at the very top of the distribution not directly observable with survey-based data. However income measures on tax forms were designed to satisfy IRS administrative objectives, and are not always comparable with the income definitions economic researchers prefer. Using IRS tax record data since 1989 that we statistically match to Survey of Consumer Finances and Census data for income sources not available in tax data, we explore the robustness of levels and trends in inequality using the taxable market income definition often used in the top income literature to alternative income definitions that consider income more comprehensively. Additionally, we illustrate the importance of the choice of capital gains measures – demonstrating that focusing on taxable realized capital gains distorts the level and trend in top incomes relative to an accrued capital gains measure that is more consistent with the Haig-Simons income definition. This is particularly important during the Great Recession, where the exemption of housing capital gains and losses from taxation meant that the substantial losses incurred by middle-income families were not reported on tax forms. As a result, while researchers incorporating only taxable realized capital gains observed a decline in top income shares in the initial years of the Great Recession, we observe that the top income shares actually rose sharply once fully including accrued capital gains and losses including those from housing.
Discussant(s)
David Johnson
,
University of Michigan
Nathaniel Hendren
,
Harvard University
Jacob A. Mortenson
,
Joint Committee on Taxation
Jonathan Fisher
,
Stanford University
JEL Classifications
  • D3 - Distribution
  • H0 - General