What has Been Happening to UK Income Inequality Since the Mid-1990s? Answers from Reconciled and Combined Household Survey and Tax Return Data

Abstract

Estimates of UK income inequality trends differ substantially according to whether estimates are based on household survey data (used for official statistics) or tax return data (used in the top incomes literature). We reconcile differences in variable definitions and combine survey and tax return data in order to take advantage of the much better coverage of top incomes in the latter, and provide improved estimates of UK inequality trends since the mid-1990s. We show there was a marked increase in income inequality in the early 2000s that survey-based estimates do not reveal, and our conclusions are robust to changes in the definitions of income, income-sharing unit, and summary inequality measure. In addition, our reconciled and combined data provide more comparable estimates of UK-US inequality trends than the top incomes literature to date.

On the Limitations of Some Current Usages of the Gini Index

“…Coyne, ), statements that since 2000 “inequality has not increased in Canada.” Burkhauser et al . (, p. 2) have noted that similar statements have appeared in the British press, based on similar observation of a recently flat Gini index for household income and similar disregard of a continued increase in the top one percent income share. Such journalistic statements assume that there is no important difference between change in the Gini index of inequality and changes in the inequalities which that index tries to summarize—and implicitly some professional economists seem to agree.…”

Underreporting of Top Incomes and Inequality: A Comparison of Correction Methods using Simulations and Linked Survey and Tax Data

“…Among others, see Burkhauser et al . (2016), Jenkins (2017), Nhlasny2017impact, Hlasny and Verme (2018), Piketty et al . (2019), and Chancel and Piketty (2019).…”

“…In practice, the threshold can be selected a priori, as the 80th, 90th, 95th, or 99th quantile of the distribution (Burkhauser et al ., 2016; Chancel and Piketty, 2019; Piketty et al ., 2019). A less arbitrary method consists of selecting the threshold based on the quantile ratio function: $$$$ \mathrm{select}\kern1em t=\max \left({Q}_X(p)\right)\kern1em \mathrm{such}\ \mathrm{that}\kern1em \frac{Q_Y(p)}{Q_X(p)}=1.$$…”

“…Recognizing this, throughout the years researchers have resorted to using other sources of information to correct survey data or survey‐based inequality estimates. These other sources include National Accounts (Altimir, 1987; Piketty et al ., 2018), administrative data from tax and social security records (Burkhauser et al ., 2016; Jenkins, 2017; Piketty et al ., 2019), complementary surveys (Fisher et al ., 2022), and the so‐called rich lists (Brzezinski, 2014). For a survey, see Lustig (2019).…”

The impact of different data sources on the level and structure of income inequality

“…The best procedure would be combining the accuracy of administrative information with the rich demographic details and population representativeness of surveys (Oberski et al 2017;Jenkins and Rios-Avila 2021). Some authors have attempted to implement this strategy by harmonizing the definitions of their variables to improve the representativeness of higher incomes (see, for instance, Burkhauser et al 2016;Higgins et al 2018;Lynn et al 2012;Meyer and Wu 2018).…”