Household survey data and tax data both suffer from measurement concerns at the top of the income distribution. This column analyses data from the US to investigate when and why the two data sources diverge. The authors conclude that the source of the divergence lies in the measurement of non-labour income as tax rules change over time.
Household survey data have been widely used for understanding, among other things, the welfare of individuals and families within and across countries. However, as is well known, household surveys do not fully capture the top of the income distribution – whether due to misreporting or various forms of non-response (i.e. refusal to participate or to provide specific information) (e.g. Korinek et al. 2006, Lustig 2020, Ravallion 2021).