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Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed

Erik Hurst (), Geng Li and Benjamin Pugsley ()

The Review of Economics and Statistics, 2014, vol. 96, issue 1, 19-33

Abstract: A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings. © No rights reserved. This work was authored as part of the Contributor's official duties as an Employee of the United States Government and is therefore a work of the United States Government. In accordance with 17 U.S.C. 105, no copyright protection is available for such works under U.S. law.

Keywords: household surveys; self-employment; income; taxes (search for similar items in EconPapers)
JEL-codes: C80 E21 H26 J30 (search for similar items in EconPapers)
Date: 2014
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Related works:
Working Paper: Are household surveys like tax forms: evidence from income underreporting of the self-employed (2011) Downloads
Working Paper: Are Household Surveys Like Tax Forms: Evidence from Income Underreporting of the Self Employed (2010) Downloads
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