The Weight of the Rich: Improving Surveys Using Tax Data

Abstract : It is generally accepted that household surveys fail to accurately portray the top tail of the income distribution. Indeed, studies based on tax data challenge the credibility of surveys as a source to study inequality. To date, there is no broad consensus on how to best reconcile these two datasets. This paper presents a novel method that enables a consistent combination of these two sources of data, under the assumption that tax data sets a credible lower bound on the amount of people with given levels of income. The resulting micro-dataset preserves the consistency of other socio-demographic variables at both the individual and aggregate levels. It thus allows researchers to analyze dimensions of social inequality under a more representative distributive framework. Our procedure is illustrated by empirical applications to five countries, covering both developed and less-developed contexts over numerous years.