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Survey Under-Coverage of Top Incomes and Estimation of Inequality: What Is the Role of the UK's SPI Adjustment?

Listed author(s):
  • Burkhauser, Richard V.

    ()

    (Cornell University)

  • Herault, Nicolas

    ()

    (Melbourne Institute of Applied Economic and Social Research)

  • Jenkins, Stephen P.

    ()

    (London School of Economics)

  • Wilkins, Roger

    ()

    (Melbourne Institute of Applied Economic and Social Research)

Survey under-coverage of top incomes leads to bias in survey-based estimates of overall income inequality. Using income tax record data in combination with survey data is a potential approach to address the problem; we consider here the UK's pioneering 'SPI adjustment' method that implements this idea. Since 1992, the principal income distribution series (reported annually in Households Below Average Income) has been based on household survey data in which the incomes of a small number of 'very rich' individuals are adjusted using information from 'very rich' individuals in personal income tax return data. We explain what the procedure involves, reveal the extent to which it addresses survey under-coverage of top incomes, and show how it affects estimates of overall income inequality. More generally, we assess whether the SPI adjustment is fit for purpose and consider whether variants of it could be employed by other countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 10868.

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Length: 45 pages
Date of creation: Jun 2017
Handle: RePEc:iza:izadps:dp10868
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  1. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2009. "Recent trends in top income shares in the USA: Reconciling estimates from March CPS and IRS tax return data," Working Papers 139, ECINEQ, Society for the Study of Economic Inequality.
  2. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
  3. Chris Belfield & Richard Blundell & Jonathan Cribb & Andrew Hood & Robert Joyce, 2017. "Two decades of income inequality in Britain: the role of wages, household earnings and redistribution," IFS Working Papers W17/01, Institute for Fiscal Studies.
  4. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins & Jeff Larrimore, 2012. "Recent Trends in Top Income Shares in the United States: Reconciling Estimates from March CPS and IRS Tax Return Data," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 371-388, May.
  5. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2009. "From Bottom To Top: The Entire Income Distribution In Germany, 1992-2003," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 303-330, June.
  6. Andreas Alfons & Matthias Templ & Peter Filzmoser, 2013. "Robust estimation of economic indicators from survey samples based on Pareto tail modelling," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 62(2), pages 271-286, March.
  7. Brewer, M & Etheridge, B & O'Dea, C, 2013. "Why are households that report the lowest incomes so well-off," Economics Discussion Papers 8993, University of Essex, Department of Economics.
  8. Mike Brewer & Liam Wren-Lewis, 2016. "Accounting for Changes in Income Inequality: Decomposition Analyses for the UK, 1978–2008," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(3), pages 289-322, June.
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