We use a large panel of tax returns covering the years 1987 to 1996. 4 The panel is based on the IRS’s annual cross-sectional samples of tax returns, which are large samples chosen to represent the population of tax-return filers. The population of tax filers is similar to the population of households, except that a household may comprise more than one tax-filing unit (., married cou- ples may file separately), and some households do not file any tax returns. 5 For example, our data for 1994 represent about 130 million tax returns, while the 1995 SCF represents about 100 million households. Throughout the paper we use the terms individuals, households,.
