Top incomes and inequality measurement: A comparative analysis of correction methods using the EU-SILC data

Vladimir Hlasny and Paolo Verme

No 463, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: It is sometimes observed and frequently assumed that top incomes in household surveys worldwide are poorly measured and that this problem biases the measurement of income inequality. This paper tests this assumption and compares the performance of reweighting and replacing methods designed to correct inequality measures for top income biases generated by data issues such as unit or item nonresponse. Results for the European Union’s Statistics on Income and Living Conditions survey indicate that survey response probabilities are negatively associated with income and bias the measurement of inequality downward. Correcting for this bias with reweighting, the Gini coefficient for Europe is revised upwards by 3.7 percentage points. Similar results are reached with replacing of top incomes using values from the Pareto distribution when the cut point for the analysis is below the 95th percentile. For higher cut points, results with replacing are inconsistent suggesting that popular parametric distributions do not mimic real data well at the very top of the income distribution.

Keywords: Top incomes; inequality measures; survey nonresponse; Pareto distribution; parametric estimation; EU SILC. (search for similar items in EconPapers)
JEL-codes: D31 D63 N35 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2018-04
New Economics Papers: this item is included in nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
http://www.ecineq.org/milano/WP/ECINEQ2018-463.pdf (application/pdf)

Related works:
Journal Article: Top Incomes and Inequality Measurement: A Comparative Analysis of Correction Methods Using the EU SILC Data (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inq:inqwps:ecineq2018-463

Access Statistics for this paper

More papers in Working Papers from ECINEQ, Society for the Study of Economic Inequality Contact information at EDIRC.
Bibliographic data for series maintained by Maria Ana Lugo ( this e-mail address is bad, please contact ).