"Top Incomes in the Long Run of History" with Tony Atkinson and

36Journal of Economic Literature, Vol. XLIX (March 2011)2520151050194919531957196119651969197319771981198519891993199720012005Share in total income of top percentile (in percent)U.S.CanadaSpainSwedenFinlandU.S. with CGsCanada with CGsSpain with CGsSweden with CGsFinland with CGsFigure 7. Effect of Capital Gains on Share of Top Percentile, 1949–2006Source: Atkinson and Piketty (2007, 2010).net income, after deductions. Piketty andSaez (2003) apply adjustment factors tothe threshold levels and mean incomes forthe years 1913–43 to create homogeneousseries. Private pension provisions are alsosometimes used as a pay deferral vehicle tosmooth taxable income and reduce the burdenof progressive taxation. Such tax avoidancebehavior may also lessen measuredcross-sectional income concentration.The areas highlighted above—transfers,tax-exempt capital income, capital gains, anddeductions—may all give rise to cross-countrydifferences and to lack of comparabilityover time in the income tax data. Any userneeds to take them into account. We havetried to flag those items for each study intable 4. The same applies to tax evasion, towhich we devote the next subsection.3.2.3 Tax Avoidance and Tax EvasionAs highlighted above, the standard objectionto the use of income tax data to studythe distribution of income is that tax returnsare largely works of fiction, as taxpayers seekto avoid and evade being taxed. The underreportingof income can affect cross-countrycomparisons where there are differences inprevalence of evasion and can affect measurementof trends where the extent of evasionhas changed over time.It is not a coincidence that the developmentof income taxation follows a very similarpath across the countries studied. All countriesstart with progressive taxes on comprehensiveincome using high exemption levelsthat limits the tax to only a small group at thetop of the distribution. Indeed, at an early