Trends and Levels of Income Inequality in Wisconsin, 1919-1941 : The Effect of Using Different Data Sources

There is no rest for the wicked. Every morning, I am up at 05:30 to start writing and every day I advance my research agenda a little more. The most recent addition to my list is written with my good friend Phil Magness of George Mason University. Phil and I have been concentrated for the last year or so on the task of improving (alongside John Moore and Phil Schlosser for subsequent papers) the precision of inequality measurements before 1941 in the United States. There are many difficulties in tackling this topic, most notably the gargantuan magnitude of the task. As such, we sliced our contribution into different articles. The one you will find here on SSRN is the first (of three, maybe four) papers on the topic. The abstract is below:

In this short note, we use two different sources available for the state of Wisconsin
in order to assess the quality of income inequality measurements in the United States between the two World Wars. By comparing estimates derived from federal income tax records with estimates derived from the state income tax for Wisconsin, we find that each series produces highly different patterns and levels in inequality for the state. These findings attest to the high sensitivity of modern distributional estimation techniques to issues of quality with their underlying data sources. Noting this concern, we argue for greater caution in the use of income tax data for measuring historical income inequality.


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