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Approximations to the truth: comparing survey and microsimulation approaches to measuring income for social indicators

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  • Figari, Francesco
  • Iacovou, Maria
  • Skew, Alexandra J.
  • Sutherland, Holly

Abstract

This paper evaluates 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. Given that benefit receipts tend to be under-reported in survey data, and over-estimated in microsimulation procedures, we may expect the two approaches to generate slightly different results. In fact, we find reasonably consistent results. To the extent that the results differ, we explore why these differences occur, and suggest directions for future research, where each approach may inform improvements in the other.

Suggested Citation

  • Figari, Francesco & Iacovou, Maria & Skew, Alexandra J. & Sutherland, Holly, 2010. "Approximations to the truth: comparing survey and microsimulation approaches to measuring income for social indicators," EUROMOD Working Papers EM3/10, EUROMOD at the Institute for Social and Economic Research.
  • Handle: RePEc:ese:emodwp:em3-10
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    1. Christina Behrendt, 2002. "Do Income Surveys Overestimate Poverty in Western Europe? Evidence from a Comparison with Institutional Frameworks," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, pages 429-440.
    2. Herwig Immervoll & Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Nicolaj Verdelin, 2008. "An Evaluation of the Tax-Transfer Treatment of Married Couples in European Countries," EPRU Working Paper Series 08-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    3. Lynn, Peter & Jäckle, Annette & Jenkins, Stephen P. & Sala, Emanuela, 2004. "The impact of interviewing method on measurement error in panel survey measures of benefit receipt: evidence from a validation study," ISER Working Paper Series 2004-28, Institute for Social and Economic Research.
    4. 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.
    5. 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.
    6. André Decoster & Kris De Swerdt & Kristian Orsini, 2010. "A Belgian Flat Income Tax. Effects on Labour Supply and Income Distribution," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature, vol. 0(1), pages 23-54.
    7. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2011. "Estimating trends in US income inequality using the Current Population Survey: the importance of controlling for censoring," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 393-415.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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, pages 771-799.
    13. 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, pages 327-365.
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    Cited by:

    1. H. Xavier Jara & Marcelo Varela, 2017. "Tax-benefit microsimulation and income redistribution in Ecuador," WIDER Working Paper Series 177, World Institute for Development Economic Research (UNU-WIDER).
    2. Rastrigina, Olga & Leventi, Chrysa & Sutherland, Holly, 2015. "Nowcasting: estimating developments in the risk of poverty and income distribution in 2013 and 2014," EUROMOD Working Papers EM12/15, EUROMOD at the Institute for Social and Economic Research.
    3. Mariña Fernández Salgado & Francesco Figari & Holly Sutherland & Alberto Tumino, 2014. "Welfare Compensation for Unemployment in the Great Recession," Review of Income and Wealth, International Association for Research in Income and Wealth, pages 177-204.
    4. Jekaterina Navicke & Olga Rastrigina & Holly Sutherland, 2014. "Nowcasting Indicators of Poverty Risk in the European Union: A Microsimulation Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, pages 101-119.

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