The Inequality (or the Growth) We Measure. Data Gaps and the Distribution of Incomes

There is a large gap between income estimates used in inequality studies and macroeconomic statistics. This makes it hard to assess how economic growth is distributed across the population, and to what extent mainstream distributional data represent income flows accurately. In this paper, Facundo Alvaredo, Mauricio De Rosa, Ignacio Flores and Marc Morgan take stock of these discrepancies by confronting estimates of the income distribution from surveys, administrative records and aggregates from the system of national accounts, thoroughly documenting them over the past two decades for ten Latin American countries. Surveys only account for around half of the macroeconomic income in the region. Measurement gaps have been growing fast for many countries, the bulk being due to non-covered capital income. Top tails from surveys and tax data diverge too. The authors discuss the degree to which inequality levels and trends could be affected.

4 key findings

• Household surveys only account for around half of the macroeconomic income in the region.
• Measurement gaps account for just over half of the overall gap on average, while the rest is due to conceptual differences across data sets.
• Measurement gaps have been growing fast for many countries, the bulk being due to non-covered capital income.
• The comparison of the top tails in administrative data and surveys, shows diverging averages –especially for non-wage incomes– and different shapes.

Figure: Comparing total income in national accounts, surveys and administrative data

Authors

• Facundo Alvaredo: PSE/EHESS/WIL, INET at Oxford, IIEP-UBA-CONICET (alvaredo@gmail.com).
• Mauricio De Rosa: PSE, World Inequality Lab, Instituto de Economía – Universidad de la República (mauricio.derosa@fcea.edu.uy).
• Ignacio Flores: City University of New York, PSE-World Inequality Lab (iflores@cg.cuny.edu).
• Marc Morgan: University of Geneva, PSE-World Inequality Lab (marc.morgan@unige.ch).

Media Contact

• Olivia Ronsain: olivia.ronsain@psemail.eu; +33 7 63 91 81 68

Acknowledgements

The authors are grateful to the Statistics Division of the United Nation Economic Commission for Latin America and the Caribbean (ECLAC) for sharing their harmonized household surveys dataset. They also thank the statistics division of the Peruvian tax agency (SUNAT) for preparing income tax tabulations; and Catalina Galdamez Vanegas for kindly sharing income tax tabulations from El Salvador. They gratefully acknowledge financial support from the European Research Council (ERC Grant 856455), the French Research Agency (EUR Grant ANR-17-EURE-0001), and the Institute for New Economic Thinking.