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

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 & Sutherland, Holly & Iacovou, Maria & J. Skew, Alexandra, 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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    References listed on IDEAS

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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, vol. 58(1), pages 429-440, June.
    2. Tsakloglou, Panos & Matsaganis, Manos & Sutherland, Holly & Decoster, André, 2009. "Accurate income measurement for the assessment of public policies: final report," EUROMOD Working Papers EM7/09, EUROMOD at the Institute for Social and Economic Research.
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    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. Figari, Francesco & Paulus, Alari & Sutherland, Holly & Mantovani, Daniela & Morawski, Leszek & Lelkes, Orsolya & Kump, Nataša & Levy, Horacio & Cok, Mitja & Hegedus, Péter & Lietz, Christine & Lups, 2009. "The effects of taxes and benefits on income distribution in the enlarged EU," EUROMOD Working Papers EM8/09, EUROMOD at the Institute for Social and Economic Research.
    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, vol. 9(3), pages 393-415, September.
    8. Sutherland, Holly & Lietz, Christine, 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 & Sutherland, Holly & Levy, Horacio, 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. Fuchs, Michael, 2007. "Social assistance – no, thanks? Empirical analysis of non-take-up in Austria 2003," EUROMOD Working Papers EM4/07, EUROMOD at the Institute for Social and Economic Research.
    12. Sutherland, Holly & Mantovani, Daniela, 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.
    13. 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, vol. 39(3), pages 771-799, September.
    14. 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, vol. 53(3), pages 327-365, March.
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    Cited by:

    1. Paolo Caro, 2020. "Decomposing Personal Income Tax Redistribution with Application to Italy," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(1), pages 113-129, March.
    2. 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, vol. 119(1), pages 101-119, October.
    3. Leventi, Chrysa & Rastrigina, Olga & Sutherland, Holly & Vujackov, Sanja, 2016. "Nowcasting: estimating developments in median household income and risk of poverty in 2014 and 2015," EUROMOD Working Papers EM8/16, EUROMOD at the Institute for Social and Economic Research.
    4. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 7661, Victoria University of Wellington, Chair in Public Finance.
    5. 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).
    6. Nolan, Matt, 2018. "Did tax-transfer policy change New Zealand disposable income inequality between 1988 and 2013?," Working Paper Series 20842, Victoria University of Wellington, Chair in Public Finance.
    7. Stefan Angel & Richard Heuberger & Nadja Lamei, 2018. "Differences Between Household Income from Surveys and Registers and How These Affect the Poverty Headcount: Evidence from the Austrian SILC," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(2), pages 575-603, July.
    8. H Xavier Jara & Marcelo Varela, 2019. "Tax-benefit Microsimulation and Income Redistribution in Ecuador," International Journal of Microsimulation, International Microsimulation Association, vol. 12(1), pages 52-82.
    9. Leventi, Chrysa & Rastrigina, Olga & 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.
    10. Andrea Albarea & Michele Bernasconi & Anna Marenzi & Dino Rizzi, 2020. "Income Underreporting and Tax Evasion in Italy: Estimates and Distributional Effects," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(4), pages 904-930, December.

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