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Frank (2009) constructed a comprehensive panel of state-level income inequality measures using individual tax filing data from the Internal Revenue Service. Employing an array of cointegration exercises for the data, he reported a positive long-run relationship between income inequality and the real income per capita in the United States. This article questions the validity of his findings. First, we suggest a misspecification problem in his approach regarding the order of integration in the inequality index, which shows evidence of nonstationarity only for the post-1980 data. Second, we demonstrate that his findings are not reliable because the panel cointegration test he used requires cross-section independence, which is inappropriate for the U.S. state-level data. Employing panel tests that allow cross-section dependence, we find no evidence of cointegration between inequality and the real income. (JEL D31, 040), I. INTRODUCTION The unprecedented rise in U.S. income inequality since the early 1980s has been attracting the attention of researchers and policy makers over the past decades. One key question [...]

We examine the relative importance of tax rates and macroeconomic fluctuations in explaining the share of national adjusted gross income (AGI) reported by the top 0.5% of all taxpayers. Results indicate that cutting the top income or capital gains tax rate would increase the top AGI share but not by enough to increase revenues. The preponderance of evidence suggests that the top AGI share is affected more by the capital gains tax rate than by the income tax rate but that real gross domestic product fluctuations have even larger effects. (JEL H24, E62), I. INTRODUCTION The effects of tax policy at various points in the income distribution have received increased attention from politicians and researchers in recent years. Both major presidential candidates in [...]

We find strongly non-Ricardian results when we re-estimate Evans's [1988] model using a better approximation of the market value of wealth. We also examine the long-run properties of the data and find results consistent with our regression evidence when we allow for declining labor income as modeled by Gali [1990]. Our findings in support of non-Ricardian behavior by consumers stand in sharp contrast to those of both Evans and Gali., I. INTRODUCTION A continuing debate in macroeconomics concerns the ability of fiscal policy to affect aggregate demand. In other words, if the government reduces taxes and finances a given level [...]

In a life-cycle model of married womens' labor supply the husband's expected lifetime income should have a greater effect on his wife's labor supply than should his current income. Using the Panel Study of Income Dynamics data, the husband's average lifetime income (over the panel years) does have a greater negative income effect than current income. However, this income effect has declined over time: the labor supply of wives is becoming less sensitive to their husbands' incomes. This declining elasticity would cause household income inequality to worsen over time, but has been offset by other factors., I.INTRODUCTION There has been an abundance of papers on female labor supply over the years, but most do not rigorously test the life-cycle model of labor supply, and none focus [...]