Pareto Models, Top Incomes, and Recent Trends in UK Income Inequality

Arbeitspapier

I determine UK income inequality levels and trends by combining inequality estimates from tax return data (for the 'rich') and household survey data (for the 'non-rich'), taking advantage of the better coverage of top incomes in tax return data (which I demonstrate) and creating income variables in the survey data with the same definitions as in the tax data to enhance comparability. For top income recipients, I estimate inequality and mean income by fitting Pareto models to the tax data, examining specification issues in depth, notably whether to use Pareto I or Pareto II (generalised Pareto) models, and the choice of income threshold above which the Pareto models apply. The preferred specification is a Pareto II model with a threshold set at the 99th or 95th percentile (depending on year). Conclusions about aggregate UK inequality trends since the mid-1990s are robust to the way in which tax data are employed. The Gini coefficient for gross individual income rose by around 7% or 8% between 1996/97 and 2007/08, with most of the increase occurring after 2003/04. The corresponding estimate based wholly on the survey data is around –5%.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 10124

Classification and Topics

• Classification: Wirtschaft ; Specific Distributions; Specific Statistics ; Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access ; Personal Income, Wealth, and Their Distributions
• Subject: inequality ; top incomes ; Pareto distribution ; generalized Pareto distribution ; survey under-coverage ; HBAI ; SPI

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jenkins, Stephen P.
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/145258
• Last update: 10.03.2025, 11:43 AM CET