Trends in Income Inequality, Volatility, and Mobility Risk
Publication Date: November 2008
Publisher(s): Tax Policy Center
Author(s): Austin Nichols
Special Collection: John D. and Catherine T. MacArthur Foundation
Keywords: Economy; Income and Wealth Distribution; Employment; Tax Policy
A unified measure of inequality, volatility, and mobility risk is developed from well-known decompositions of a generalized entropy inequality measure using panel data. Variation across individuals in mean family income is termed inequality, and the variability of income over time is decomposed into volatility and mobility risk. I apply the decompositions to several decades of U.S. data and find every component increasing over time, and a large impact of taxes. I further find large swings in the progressivity of income growth after taxes that are not observed in pretax income, consistent with the known tax regimes in recent U.S. history.