On Synthetic Income Panels

45 Pages Posted: 3 Apr 2021

See all articles by Héctor Moreno

Héctor Moreno

University of Oxford

Francois Bourguignon

Paris School of Economics (PSE)

Hai-Anh Dang

World Bank - Development Data Group (DECDG); IZA Institute of Labor Economics; Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Global Labor Organization (GLO); Vietnam National University Ha Noi; Vietnam Academy of Social Sciences (VASS) - Centre for Analysis and Forecasting

Abstract

In many developing countries, the increasing public interest in monitoring economic inequality and mobility is hindered by the scarce availability of longitudinal data. Synthetic panels based on matching individuals with the same time-invariant characteristics in consecutive cross-sections have been recently proposed as a substitute to such data. We extend the methodology to construct such synthetic panels in several directions by: a) explicitly assuming the unobserved or time variant determinants of (log) income are AR(1) and relying on pseudo-panel procedures to estimate the corresponding auto-regressive coefficient; b) abstracting from (log) normality assumptions; c) generating a close to perfect match of the terminal year income distribution and d) considering the whole income mobility matrix rather than mobility in and out of poverty. We exploit the cross-sectional dimension of a national-representative Mexican panel survey to evaluate the validity of this approach. With the median estimate of the AR coefficient, the income mobility matrix in the synthetic panel closely approximates that of the genuine matrix observed in the actual panel, except for out-lying values of the AR coefficient.

JEL Classification: D31, I32

Suggested Citation

Moreno, Héctor and Bourguignon, Francois and Dang, Hai-Anh H., On Synthetic Income Panels. IZA Discussion Paper No. 14236, Available at SSRN: https://ssrn.com/abstract=3818646

Héctor Moreno (Contact Author)

University of Oxford

Mansfield Road
Oxford, OX1 4AU
United Kingdom

Francois Bourguignon

Paris School of Economics (PSE) ( email )

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Paris, 75014 75014
France

Hai-Anh H. Dang

World Bank - Development Data Group (DECDG) ( email )

1818 H. Street, N.W.
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United States

HOME PAGE: http://sites.google.com/site/haianhhdang/

IZA Institute of Labor Economics ( email )

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Germany

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

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Bloomington, IN 47405
United States

Global Labor Organization (GLO) ( email )

Collogne
Germany

Vietnam National University Ha Noi ( email )

Vietnam Academy of Social Sciences (VASS) - Centre for Analysis and Forecasting ( email )

1 Lieu Giai Street
Hanoi
Vietnam

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