Inequality and Top Income in Uruguay: A Comparison between Household Surveys and Income Tax Micro-data

After increasing over more than a decade, recent studies based on household surveys data show that income inequality in Uruguay started to decline in 2008. In this study we assess whether thistrend is robust to the use of novel micro-data from the recently restored Uruguayan personal income tax for the years 2009-2011. We analyze primary income and pensions and carry out to main comparative exercises. In the firstpart of the paper, we adjust household surveys to make them comparable to tax records. After that, we follow the methodology proposed by Atkinson et al (2011) and Alvaredo (2011) to compute top income shares and corrected inequality measures. We also investigate the redistributive effect of the personal income tax burden in the two data sets. Inequality indexes depict a similar trend in inequality reduction, even though the decrease is less sharp in tax records than in harmonized household surveys. According to our estimations from income tax data, the share of the top 1% did not decline in this period, and was situated around 14%. Household survey data underestimate the share of the top 1% in total income by approximately 3 p.p. and depict an opposite trend in the top shares evolution throughout the period compared to the one observed in income tax micro-data. This result might be revealing an increasing difficulty of ECHfor capturing very high incomes. Finally, personal income tax in Uruguay redistributes roughly 2p.p. of the Gini index. Effective tax rates exhibit a progressive pattern in the case of total income, labour income and pensions, whereas they are slightly regressive when considering capital income.