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Approximations to the Truth: Comparing Survey and Microsimulation Approaches to Measuring Income for Social Indicators

  • Francesco Figari
  • Maria Iacovou

    ()

  • Alexandra Skew
  • Holly Sutherland

In this paper, we evaluate income distributions in four European countries (Austria, Italy, Spain and Hungary) using two complementary approaches: a standard approach based on reported incomes in survey data, and a microsimulation approach, where taxes and benefits are simulated. These two approaches may be expected to generate slightly different results, particularly in respect of individuals on lower incomes, because benefit receipts tend to be under-reported in survey data, and over-estimated in microsimulation procedures. However, we find that the two approaches do in fact produce reasonably consistent results, in terms of both inequality measures and poverty rates. To the extent that the results differ, we explore the reasons why these differences arise, and suggest directions for future research, in which each approach may inform improvements in the other.

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File URL: http://hdl.handle.net/10.1007/s11205-010-9775-4
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Article provided by Springer in its journal Social Indicators Research.

Volume (Year): 105 (2012)
Issue (Month): 3 (February)
Pages: 387-407

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Handle: RePEc:spr:soinre:v:105:y:2012:i:3:p:387-407
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  1. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier.
  2. Pudney, Stephen & Sutherland, Holly, 1994. "How reliable are microsimulation results? : An analysis of the role of sampling error in a U.K. tax-benefit model," Journal of Public Economics, Elsevier, vol. 53(3), pages 327-365, March.
  3. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P. & Larrimore, Jeff, 2008. "Estimating Trends in US Income Inequality Using the Current Population Survey: The Importance of Controlling for Censoring," IZA Discussion Papers 3690, Institute for the Study of Labor (IZA).
  4. Carlo V Fiorio & Francesco D'Amuri, 2006. "Tax Evasion In Italy: An Analysis Using A Tax-Benefit Microsimulation Model," The IUP Journal of Public Finance, IUP Publications, vol. 0(2), pages 19-37, May.
  5. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," NBER Working Papers 15181, National Bureau of Economic Research, Inc.
  6. Mantovani, Daniela & Sutherland, Holly, 2003. "Social indicators and other income statistics using the EUROMOD baseline: a comparison with Eurostat and National Statistics," EUROMOD Working Papers EM1/03, EUROMOD at the Institute for Social and Economic Research.
  7. Lietz, Christine & Sutherland, Holly, 2005. "Social indicators and other income statistics using EUROMOD: an assessment of the 2001 Baseline and Changes 1998-2001," EUROMOD Working Papers EM6/05, EUROMOD at the Institute for Social and Economic Research.
  8. Figari, Francesco & Levy, Horacio & Sutherland, Holly, 2007. "Using the EU-SILC for policy simulation: prospects, some limitations and some suggestions," EUROMOD Working Papers EM1/07, EUROMOD at the Institute for Social and Economic Research.
  9. Christina Behrendt, 2002. "Do Income Surveys Overestimate Poverty in Western Europe? Evidence from a Comparison with Institutional Frameworks," Social Indicators Research, Springer, vol. 58(1), pages 429-440, June.
  10. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
  11. Sutherland, Holly & DeCoster, Andre & Matsaganis, Manos & Tsakloglou, Panos, 2009. "Accurate income measurement for the assessment of public policies: final report," EUROMOD Working Papers EM7/09, EUROMOD at the Institute for Social and Economic Research.
  12. repec:ese:iserwp:2004-28 is not listed on IDEAS
  13. Paulus, Alari & Cok, Mitja & Figari, Francesco & Hegedus, Péter & Kump, Nataša & Lelkes, Orsolya & Levy, Horacio & Lietz, Christine & Lupsik, Silja & Mantovani, Daniela & Morawski, Leszek & Sutherla, 2009. "The effects of taxes and benefits on income distribution in the enlarged EU," EUROMOD Working Papers EM8/09, EUROMOD at the Institute for Social and Economic Research.
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