Sheltered Income: Estimating Income Under-Reporting in Canada, 1998 and 2004

摘要

We use data from the Survey of Financial Security and the Survey of Household Spending to estimate the incidence and extent of income under-reporting in Canada in 1998 and 2004. We estimate that the proportion of households under-reporting income is roughly 35 to 50 per cent in both years. Our estimates also suggest that the amount of under-reported income rose by roughly 40 per cent between 1998 and 2004 and remained stable as a proportion of GDP of 14 to 19 per cent. We find evidence that income underreporting is pervasive and is not confined to households that report self-employment income in the survey data. We also find that poverty measures that rely on reported income appear unreliable because under-reporting necessarily implies a lower reported income. Thus, households that under-report appear to be poorer. We propose a simple ratio method of identifying households that under-report income using the household's budget share on shelter.