Survey Under-Coverage of Top Incomes and Estimation of Inequality: What is the Role of the UK's SPI Adjustment?

45 Pages Posted: 10 Jul 2017

See all articles by Richard V. Burkhauser

Richard V. Burkhauser

Cornell University - Department of Policy Analysis & Management (PAM); University of Melbourne, Melbourne Institute

Nicolas Herault

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Stephen P. Jenkins

London School of Economics & Political Science (LSE) - Department of Social Policy and Administration; Institute for the Study of Labor (IZA); University of Essex - Institute for Social and Economic Research (ISER)

Roger Wilkins

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

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Abstract

Survey under-coverage of top incomes leads to bias in survey-based estimates of overall income inequality. Using income tax record data in combination with survey data is a potential approach to address the problem; we consider here the UK's pioneering 'SPI adjustment' method that implements this idea. Since 1992, the principal income distribution series (reported annually in Households Below Average Income) has been based on household survey data in which the incomes of a small number of 'very rich' individuals are adjusted using information from 'very rich' individuals in personal income tax return data. We explain what the procedure involves, reveal the extent to which it addresses survey under-coverage of top incomes, and show how it affects estimates of overall income inequality. More generally, we assess whether the SPI adjustment is fit for purpose and consider whether variants of it could be employed by other countries.

Keywords: inequality, income inequality, survey under-coverage, SPI adjustment, top incomes, tax return data, survey data

JEL Classification: D31, C81

Suggested Citation

Burkhauser, Richard V. and Herault, Nicolas and Jenkins, Stephen P. and Wilkins, Roger, Survey Under-Coverage of Top Incomes and Estimation of Inequality: What is the Role of the UK's SPI Adjustment?. IZA Discussion Paper No. 10868. Available at SSRN: https://ssrn.com/abstract=2998977

Richard V. Burkhauser (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States

University of Melbourne, Melbourne Institute ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Nicolas Herault

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

HOME PAGE: http://www.findanexpert.unimelb.edu.au/researcher/person125238.html

Stephen P. Jenkins

London School of Economics & Political Science (LSE) - Department of Social Policy and Administration ( email )

Houghton Street
London, England WC2A 2AE
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 120 687 3374 (Phone)
+44 120 687 3151 (Fax)

Roger Wilkins

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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