How does our wealth and income comparator work?
The wealth and income comparator on WID.world allows people to locate themselves in the wealth and income distribution of their country and of the world. It follows WID.world’s principle of providing a consistent view between wealth and income at the country-level (as measured by the international system of national accounts) and wealth and income at the individual level (as measured using household surveys and tax data).
As such, it broadly adheres to the Distributional National Accounts Guidelines (DINA) and directly uses the data present in the WID.world database. This implies the use of an income definition that is more exhaustive (and more complex) than what is traditionally used in other comparators of income (or wealth). This also means that the results of our comparator are more comparable between countries, and more easily connected to macroeconomic aggregates.
Data sources and coverage
Our simulator is limited to countries for which researchers have produced Distributional National Accounts series. These series combine surveys, tax data and national accounts in a consistent manner to provide a full picture of the distribution of income from top to bottom.
Tax data allows us to properly capture the top of the distribution, while we use surveys to describe the bottom. We make imputations to capture certain types of income included in macroeconomic growth but not traditionally included in surveys or tax data. In all cases, we rescale the income distribution on macroeconomic totals for consistency. More precise methodological details can vary from country to country depending on available data sources: for them we refer to the corresponding papers in our library.
The wealth concept used in the comparator is net household wealth, i.e. we take into account all financial and non-financial assets owned by households, minus their debts. For more information about data sources and coverage, users are invited to refer to these two documents: Bauluz et al. (2021) (the document details the methodology behind wealth aggregates) and Bajard et al. (2021) (the document details the methodology behind wealth distributions, in particular in countries with limited data).
Our comparator focuses on the most widely available income concept at our disposal: pre-tax national income. It corresponds to the income that people receive after the operation of the pension system and unemployment insurance, but before other forms of redistribution. Therefore, it is the sum of income from labor and capital, pension and unemployment benefits, after paying social contributions but before paying the income tax and receiving social assistance benefits. In most countries, this definition is close to that of “taxable income”.
Pre-tax income also includes forms of income that are part of national income yet do not explicitly show up on anyone’s bank account. This includes imputed rents from owner-occupied housing, and the retained earnings of corporations. We ask additional questions to the user to estimate those components (see below).
When we compare incomes in one country to the distribution in another country (and only when we do so), we also take into account the value of production taxes (such as value added taxes) which can be different from a country to another. Taking such taxes into account has no impact on an individual’s position in a given country, but might affect their position in another country.
We use the adult individual as our statistical unit: that is, we follow the convention that resources within the household are split equally between all adult household members. This makes it easier to consider forms of income that cannot easily be attributed to a specific individual (e.g. capital income generated by assets owned in common). It also corrects for certain changes in the distribution that occur because of differences in the structure of households.
Imputed rent from owner-occupied housing is a form of capital income that households pay to themselves. Notionally, someone that owns their own flat pay a rent to themselves, and that rent is part of their capital income. By including imputed rent in the definition of capital income, national accountants ensure that national income does not go down when someone goes from renting to owning their house.
We value imputed rents by directly asking the user to estimate how much they would pay if they were to rent their home, and add that amount to their income.
Retained earnings of corporations
Part of the national capital income is held by corporations. That income indirectly belongs to the owner of these corporations. By including this in our definition of income, we make our results more robust to certain types of income shifting between labor and capital that can happen due to the local legislation of each country.
The estimation of retained earnings at the individual level is the most complicated part of our simulator. We compute a country-specific “rate of retained earnings” by taking the ratio of retained earnings to the value of equities in the national accounts. We ask how much stock the user owns, and then multiply that value by the rate of retained earnings. We add that value to the user’s income. The rate of retained earnings varies from 2% to 30% depending on the country (see table below).
While this is a rough approximation in most cases, it constitutes in our view the simplest and most transparent assumption. The estimation will be valid to the extent that the user’s portfolio of stocks is representative of the entire economy.
Potential discrepancies and comparability issues
Our comparator tries to strike a balance between ensuring simplicity for the user and maintaining a good standard of precision and comparability. In doing so, there are certain approximations that we had to make, or points of details that we had to leave out. These have small effects on the overall results, but more advanced users may want to be aware of them. In particular, some forms of social security contributions are included in our definition of pre-tax income (the part that does not finance pensions or unemployment insurance).