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Estimating Inequality with Missing Incomes

Author

Listed:
  • Paolo Brunori
  • Pedro Salas-Rojo
  • Paolo Verme
Abstract
The measurement of income inequality is affected by missing observations, especially if they are concentrated on the tails of an income distribution. This paper conducts an experiment to test how the different correction methods proposed by the statistical, econometric and machine learning literature address measurement biases of inequality due to item non response. We take a baseline survey and artificially corrupt the data employing several alternative non-linear functions that simulate patterns of income non-response, and show how biased inequality statistics can be when item non-responses are ignored. The comparative assessment of correction methods indicates that most methods are able to partially correct for missing data biases. Sample reweighting based on probabilities on non-response produces inequality estimates quite close to true values in most simulated missing data patterns. Matching and Pareto corrections can also be effective to correct for selected missing data patterns. Other methods, such as Single and Multiple imputations and Machine Learning methods are less effective. A final discussion provides some elements that help explaining these findings.

Suggested Citation

  • Paolo Brunori & Pedro Salas-Rojo & Paolo Verme, 2022. "Estimating Inequality with Missing Incomes," Working Papers - Economics wp2022_19.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    • Handle: RePEc:frz:wpaper:wp2022_19.rdf
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    More about this item

    Keywords

    Income Inequality; Item non-response; Income Distributions; Inequality Predictions; Imputations.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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