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Using Panel Data to Estimate Income Under‐Reporting by the Self‐Employed
Author(s) -
Kim Bonggeun,
Gibson John,
Chung Chul
Publication year - 2017
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12135
Subject(s) - panel data , economics , econometrics , point (geometry) , quarter (canadian coin) , mathematics , geography , geometry , archaeology
Self‐employment income is believed to be understated in economic statistics but there is debate about the extent of under‐reporting. This paper refines the widely used method of Pissarides and Weber ( Journal of Public Economics , Vol. 39, No. 1 (1989), pp. 17–32) that relies on discrepancies between food shares and reported incomes. Our panel data approach disentangles under‐reporting from fluctuations in transitory income and gives a point estimate of the under‐reporting rate. Previous studies just give an interval estimate and also make the unlikely assumption that under‐reporting is independent of transitory income fluctuations. Panel data from K orea and R ussia are used to illustrate the method, and suggest that in both countries almost one‐quarter of the income of self‐employed households is not reported.