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Top Income Concentration and Volatility
Measures of income concentration?such as the share of income received by the highest income families?may be biased by pro-cyclical volatility in annual income. Permanent income, though, can smooth away such volatility and sort families by their usual economic resources. Here, we demonstrate this bias using rolling 3-year panels of IRS tax records from 1997 to 2013 as a proxy for permanent income. For example, one measure of 2012 income concentration?the share of income received by the top 0.1 percent?falls from 11.3 percent to 8.9 percent when families are organized by permanent income ...