USING PANEL DATA TO ESTIMATE INCOME UNDER-REPORTING BY THE SELF-EMPLOYED

摘要

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 Korea and Russia 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.