Missing top incomes and tax-benefit microsimulation: evidence from correcting household survey data using tax records data

Marko Ledić (), Ivica Rubil () and Ivica Urban
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Ivica Rubil: The Institute of Economics, Zagreb

No 609, Working Papers from ECINEQ, Society for the Study of Economic Inequality

Abstract: Using the microsimulation model EUROMOD for Croatia, we compare the results of simulation based on the original survey data (EU-SILC) with those based on the survey data corrected using tax records data and a recent survey correction method. We show that the correction method, although it debiases inequality estimates, may not be able to correct the in-come structure by source if some income sources are severely under-represented. In Croatia, this is the case for income from capital, property, and contractual work. As a solution, we propose to complement the correction method with an ad hoc pre-correction procedure. The corrections bring the aggregate amount, distribution, and structure of survey income closer to those in the tax data. Consequently, the simulated fiscal instruments become more like those in the tax data. Simulation of a hypothetical tax reform shows the results based on the uncorrected data may be misleading in terms of the estimated budgetary impact and the distributional incidence of the reform.

Keywords: top incomes; survey data; tax records; tax-benefit microsimulation; EUROMOD; EU-SILC (search for similar items in EconPapers)
JEL-codes: D31 H24 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-03
New Economics Papers: this item is included in nep-cmp, nep-pbe and nep-pub
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http://www.ecineq.org/milano/WP/ECINEQ2022-609.pdf First version, 2022 (application/pdf)

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Working Paper: Missing top incomes and tax-benefit microsimulation: evidence from correcting household survey data using tax records data (2022)
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