Right in the Short Run

…was written by Chiaki Moriguchi and Emmanuel Saez. It’s referring to Japan:

Second, using income composition data, we show that the dramatic fall in income concentration at the top was primarily due to the collapse of capital income during WWII. Evidence from estate tax statistics confirms the drastic decline in top wealth holdings during and immediately after WWII. We argue that the transformation of the institutional structure under the postwar occupational reforms, such as the abolishment of primogeniture, the establishment of progressive tax, and the changes in corporate governance and union structure, prevented the re-concentration of income. Importantly, such redistributive government policies, which likely hindered the “natural” process of capital accumulation, were accompanied by one of the most impressive and sustained economic growths in modern history.

This paper (“The Evolution of Income Concentration in Japan, 1886-2002: Evidence from Income Tax Statistics”) is part of a larger series spearheaded by Emmanuel Saez and his buddy Thomas Piketty; they utilize tax microdata to estimate the share of income accruing to the very, very, very rich in a bunch of countries. The fine granularity of the tax data gives them a good look at the situation of the top 1%, .1%, and even .01% of earners. And surprise surprise, the income shares of these percentiles have behaved pretty differently between Japan and the US!

This would seem to suggest that skill-biased technological change has not been driving the increase in inequality in the U.S. — not when it’s the top .1%  who are capturing the money. The interesting thing about the behavior about Japan’s income concentration is that it hasn’t increased despite some very large changes in the country’s labor markets. For example, union density has decline dramatically over the past few decades, and a much greater share of the labor force is employed part time or on short contracts. Still, the ultra-rich in Japan are not capturing much more of national income.

Greg Mankiw and Robert Frank are going back and forth about one of Frank’s recent columns, in which he claimed that reducing marginal tax rates on the rich wouldn’t increase their work effort. I was reading through a review of the debate at Economist’s View and came across this statement by Greg Mankiw:

Bob is perfectly free to believe whatever he likes and to advocate increasing the top marginal tax rate. But to suggest that there is neither theory nor evidence to support the beneficial effects of lower marginal tax rates on high-income taxpayers indicates a lack of appreciation of the academic literature in public finance.

I will agree with Professor Mankiw here — lower marginal tax rates are definitely beneficial for high-income taxpayers!