 Measuring inequality from top to bottomTania Valeria Diaz Bazan No 7237, Policy Research Working Paper Series from The World Bank Abstract: This paper presents a new methodology to measure inequality that optimally combines household survey information and tax records to construct a complete income distribution. Combining the two data sources is necessary because, on the one hand, household surveys do not accurately represent the wealthiest segment of the population, while tax records do; on the other hand, the opposite is true for the lower end of the income distribution: tax records only include incomes above a certain threshold. The key innovation of the proposed methodology?and the main difference from the existing literature?is the choice of an optimal income threshold b. The Gini coefficient for the population is then computed combining the conditional income distributions for incomes below b (using household survey data) and above b (using tax records). Central to this methodology is the fact that b is not chosen arbitrarily: it should be determined in such a way as to minimize reliance on household survey data to compute the top of the income distribution. In practice, the optimal b corresponds to the minimum income level that triggers mandatory tax filing. The proposed methodology is applied to the case of Colombia. Keywords: Inequality; Tax Law; Poverty Impact Evaluation; Emerging Markets; Poverty Diagnostics (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:7237 Access Statistics for this paper More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC. |
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