Association for Public Policy Analysis & Management

Tax return data have been limited by their inability to identify members of separate tax units living in the same household. We overcome this obstacle and present the first set of tax-based household income and inequality measures. We find that using tax units as a proxy for households overstates household income inequality, as measured by Gini coefficients, by 10 percent. Consistent with previous findings, we also estimate that the CPS understates household income inequality by 6 percent. Compared to conventional tax unit level measures, the federal income tax code and EITC are less progressive when measured at the household level.