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Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed

Year: 2013

Type: article

Abstract: A large literature shows that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. We use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. On average, the self-employed underreport their income by about 25%. We show that failing to account for such income underreporting leads to biased conclusions in a variety of settings.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest_a_00363

Authors: Erik Hurst, Geng Li, Benjamin Pugsley

Institutions: National Bureau of Economic Research, University of Chicago, Federal Reserve Board of Governors, University of Notre Dame, Federal Reserve Bank of New York

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDGs: No poverty, Reduced inequalities, Decent work and economic growth

Open Access status: green

OpenAlex ID: W2123803825