Economics at your fingertips  

The Rich Underreport Their Income: Assessing Biases In Inequality Estimates And Correction Methods Using Linked Survey And Tax Data

Sean Higgins (), Nora Lustig () and Andrea Vigorito
Additional contact information
Sean Higgins: Department of Economics, Tulane University

No 70, Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics

Abstract: Do survey respondents misreport their income? If so, how does misreporting correlate with income, how does this affect estimates of income inequality, and how well do existing methods correct for bias? We use a novel database in which a subsample of Uruguay’s official household survey has been linked to tax records to document the extent and distribution of labor income underreporting and to assess the performance of various existing methods to correct inequality estimates. Individuals in the upper half of the income distribution tend to report less labor income in household surveys than those same individuals earn according to tax returns, and underreporting is increasing in income. Using simulations, we find that this leads to downwardbiased inequality estimates. Correction methods that rely only on survey data barely affect the biased inequality estimates, while methods that combine survey and tax data can lead to overcorrection and overestimation of inequality.

Keywords: inequality; income underreporting; tax records; household surveys (search for similar items in EconPapers)
JEL-codes: D31 C81 (search for similar items in EconPapers)
Date: 2018-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) First version, 2018 (application/pdf)

Related works:
Working Paper: The rich underreport their income: Assessing bias in inequality estimates and correction methods using linked survey and tax data (2018) Downloads
Working Paper: The Rich Underreport their Income: Assessing Bias in Inequality Estimates and Correction Methods using Linked Survey and Tax Data (2018) Downloads
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:

Access Statistics for this paper

More papers in Commitment to Equity (CEQ) Working Paper Series from Tulane University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Nora Lustig ().

Page updated 2019-08-02
Handle: RePEc:tul:ceqwps:70