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Approximations to the Truth: Comparing Survey and Microsimulation Approaches to Measuring Income for Social Indicators

Abstract

In this paper, we evaluate income distributions in four European countries (Austria, Italy, Spain and Hungary) using two complementary approaches: a standard approach based on reported incomes in survey data, and a microsimulation approach, where taxes and benefits are simulated. These two approaches may be expected to generate slightly different results, particularly in respect of individuals on lower incomes, because benefit receipts tend to be under-reported in survey data, and over-estimated in microsimulation procedures. However, we find that the two approaches do in fact produce reasonably consistent results, in terms of both inequality measures and poverty rates. To the extent that the results differ, we explore the reasons why these differences arise, and suggest directions for future research, in which each approach may inform improvements in the other.

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Notes

  1. 1.

    At the time of writing we are not aware of any systematic validation of the difference between net and gross incomes in the EU-SILC, with reference to administrative statistics on income tax and social contribution receipts.

  2. 2.

    It would have been possible to use a more sophisticated procedure, uprating income components by appropriate and detailed indexes in an attempt to capture actual income growth in the relevant period—and in other contexts this has been done (Hegedus et al. 2008). However, in this context, the advantages of undertaking such a complicated exercise were unclear.

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Acknowledgments

This paper forms part of the ALICE (Analysis of Life Chances in Europe) project, which is funded by the UK’s Economic and Social Research Council (ESRC) under grant number RES-062-23-1455. We use the EU-SILC UDB versions 2005-1 and 2005-2 obtained from the European Commission (Eurostat) under contract No. EU-SILC/2007/03; the Austrian version of the EU-SILC 2004 made available by Statistik Austria; and IT-SILC XUDB 2004—version November 2007, made available by ISTAT. The development of EUROMOD has been supported by a series of European Commission Framework Programme grants and we are grateful to all members of the EUROMOD consortium, past and present. We would like to thank participants at ALICE project meetings and at the GESIS conference 2009 in Mannheim for useful comments. The results and conclusions presented in the paper reflect those of the authors and are not the responsibility of data providers or the ESRC.

Author information

Correspondence to Maria Iacovou.

Appendix

Appendix

Table 5 Income deciles (annual household disposable income, equivalised; euros)
Table 6 Poverty rates (percentages) by country and approach

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Figari, F., Iacovou, M., Skew, A.J. et al. Approximations to the Truth: Comparing Survey and Microsimulation Approaches to Measuring Income for Social Indicators. Soc Indic Res 105, 387–407 (2012). https://doi.org/10.1007/s11205-010-9775-4

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Keywords

  • Income
  • Microsimulation
  • Poverty
  • Inequality
  • Europe