Abstract
AbstractHousehold income surveys often fail to capture top incomes, which leads to an underestimation of income inequality. A popular solution is to combine the household survey with data from income tax records, which has been found to result in significant upward corrections of inequality estimates. Unfortunately, tax records are unavailable in many countries, including most of the developing world. In the absence of data from tax records, this study explores the feasibility of using data on house prices to estimate the top tail of the income distribution. In an application to Egypt, where estimates of inequality based on household surveys alone are low by international standards, the study finds strong evidence that inequality is indeed being underestimated by a considerable margin. The Gini index of household per capita income for urban Egypt is found to increase from 39 to 52 after correcting for the missing top tail.
Highlights
Estimates of income inequality are conventionally derived from household income and expenditure surveys
This estimate of the top tail can be combined with an estimate of the bottom part from the household survey to obtain an estimate of the complete income distribution (Atkinson, 2007; Alvaredo, 2011; Alvaredo and Londono Velez, 2013; Diaz-Bazan, 2014; Anand and Segal, 2015)
Using house prices to capture top incomes we find that inequality may be significantly underestimated in Egypt
Summary
Estimates of income inequality are conventionally derived from household income and expenditure surveys. The only way to obtain a meaningful correction is to bring in a second source of data that carries the necessary information on top incomes and will permit for the consistent estimation of income inequality This reasoning is shared by Alvaredo and Piketty (2014) who argue that the household survey data by themselves are insufficient to estimate top incomes in Egypt. While they make an appeal for making data on income tax records available, we propose to work with house price data instead.
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