Estimating the Personal Income Distribution in Spanish Municipalities Using Tax Micro-Data

Local income data is an important economic indicator, widely used in a broad range of studies related to regional convergence, urban economics, fiscal federalism, housing and spatial analysis. Despite its importance, there is a lack of official data on local incomes and, most importantly, on local income distributions. In this paper we use official data on personal income tax returns and a reweighting procedure to derive a representative income sample at the local level. Unlike previous attempts in the literature to acquire local income estimates, the results obtained allow us to derive not only an average value for income but also its local distribution, a valuable and informative tool for analysing distributional and income inequality. We apply this methodology to Spanish Personal Income Tax micro-data and illustrate its potential use in analysing income inequality by means of computed Gini, Atkinson indexes and top 0.01%, 0.5% and 0.01% income share measures for the most populated Spanish municipalities (those with over 160,000 inhabitants).