Drawing a Line: Comparing the Estimation of Top Incomes Between Tax Data and Household Survey Data

Abstract

The paper uses the flexibility of household survey data to align their income categories and recipient units with the income categories and units found in data produced by tax authorities. Our analyses, based on a standardized definition of fiscal income, allow us to locate, for top-income groups, the sources of discrepancy. We find, using the cases of the United States, Germany, and France, that the results from survey-based and tax data correspond extremely well (in terms of total income, mean income, composition of income, and income shares) above the 90th percentile and up to the top 1 percent of the distribution. Information about income composition, available in the US, allows us to investigate the determinants of this gap in the US. About three-fourths of the tax/survey gap is due to differences in non-labor incomes, especially self-employment (business) income. The gap itself may be due to tax-induced re-classification of income from corporate to personal or/and to lower ability of surveys to capture top 1 percent incomes. (Stone Center Working Paper Series)

Top Income Adjustments and Inequality: An Investigation of the EU‐SILC†

“…(2018a) for the UK, Blanchet et al . (2022) for France, the UK, Norway, Brazil, and Chile, or Lustig (2019) for Uruguay) and it has been growing over time for countries like Ireland (Callan et al ., 2020) and the US (Yonzan et al ., 2020). Administrative data like income tax records are not without their own limits.…”

“…This issue has grown in importance over time, with Yonzan et al . (2020) reporting that the gap between surveys and tax data at the very top has been growing in recent years. Similarly, the analysis by Morelli et al .…”

“…Survey microdata generally include sufficient information to allow them to match the income concepts employed in external sources, most often on taxable or “pre‐tax” income among couples or individual adults (see Yonzan et al . (2020) for a detailed exercise of addressing this comparability issue). However, it has proven difficult to relate the results to the more standard definitions generally employed in the inequality literature, notably household income including cash transfers after direct taxes, equivalized and attributed to each person in the household (including children).…”

After the Financial Crisis: The Evolution of the Global Income Distribution Between 2008 and 2013

“…The issue of how well household survey data cover the entirety of national income or of consumption has recently gained in importance due to the growing realization that in surveys' top incomes are often underestimated (see Yonzan et al 2020). This has led to the discussion of various ways in which the top of the income distribution may be adjusted by combining survey and fiscal data (Eckerstropher et al, 2016;Blanchet et al, 2017;Goda and Sanchez, 2017;Blanchet et al 2018;Atkinson and Jenkins, 2020;Lustig, 2020).…”

“…Moreover, the definitions of income and recipients (tax units, households, or individuals) from fiscal and household data are as a rule different and they cannot be compared unless much more information and micro data are available. For individual countries that have sufficiently detailed data, this can be done, but as the recent paper by Yonzan et al (2020) shows, even for countries that have some of the best survey and fiscal data (US, Germany and France), aligning survey-based income and recipient definitions with those from the fiscal data is a very complex exercise. It is clear that a detailed attempt to adjust HS data using fiscal information can only be applied to a small subset of rich countries.…”