Rising Income Risk at the Top

J. Carter Braxton, Kyle F. Herkenhoff, Chengdai Huang, Michael Nattinger, Jonathan Rothbaum and Lawrence Schmidt

No 35664, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document an increase in U.S. income risk from 1969 to 2019 using newly digitized IRS tax returns, distinguishing permanent from transitory risk. Since the 1970s, permanent income risk increased across the distribution, but most sharply among high earners, rising nearly 70% among the top 5%. We show that, even among top earners, large negative income shocks strongly predict financial distress and higher income risk is linked with higher savings. In a quantitative life-cycle model, rising income risk concentrated at the top lowers the risk-free rate by 0.7pp, increases wealth inequality, and contributes to the "savings glut of the rich."

JEL-codes: D15 E21 (search for similar items in EconPapers)
Date: 2026-08
Note: EFG
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