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Top Incomes and Inequality Measurement: A Comparative Analysis of Correction Methods Using the EU SILC Data
[journal article]
Abstract It is sometimes observed and frequently assumed that top incomes in household surveys worldwide are poorly measured and that this problem biases the measurement of income inequality. This paper tests this assumption and compares the performance of reweighting and replacing methods designed to correc... view more
It is sometimes observed and frequently assumed that top incomes in household surveys worldwide are poorly measured and that this problem biases the measurement of income inequality. This paper tests this assumption and compares the performance of reweighting and replacing methods designed to correct inequality measures for top-income biases generated by data issues such as unit or item non-response. Results for the European Union’s Statistics on Income and Living Conditions survey indicate that survey response probabilities are negatively associated with income and bias the measurement of inequality downward. Correcting for this bias with reweighting, the Gini coefficient for Europe is revised upwards by 3.7 percentage points. Similar results are reached with replacing of top incomes using values from the Pareto distribution when the cut point for the analysis is below the 95th percentile. For higher cut points, results with replacing are inconsistent suggesting that popular parametric distributions do not mimic real data well at the very top of the income distribution.... view less
Keywords
income; household income; measurement; survey; inequality; income distribution; response behavior; estimation
Classification
Income Policy, Property Policy, Wage Policy
Methods and Techniques of Data Collection and Data Analysis, Statistical Methods, Computer Methods
Free Keywords
top incomes; inequality measures; survey non-response; Pareto distribution; parametric estimation; EU SILC
Document language
English
Publication Year
2018
Page/Pages
p. 1-21
Journal
Econometrics, 6 (2018) 2
Issue topic
Econometrics and Income Inequality
DOI
https://doi.org/10.3390/econometrics6020030
ISSN
2225-1146
Status
Published Version; peer reviewed