The Inequality (or the Growth) We Measure: Data Gaps and the Distribution of Incomes

How much correspondence is there between the income measured in microeconomic inequality studies and the income measured in macroeconomic growth statistics? The presence of significant gaps would question both our assessment of the relevance of economic growth across the population and our confidence in mainstream distributional statistics as accurate representations of income flows in an economy. In this paper, we document large gaps between income estimates from household surveys, administrative tax records and national accounts for ten Latin American countries, a region that experienced a relatively unique combination of strong growth and falling income inequality according to official statistics since the early twenty-first century. We find that surveys only account for around half of the macroeconomic income, and thus growth, of these countries over the past twenty years. We estimate that less than half of this gap is due to conceptual differences, the remainder coming from growing measurement issues, which mainly concern capital incomes. Comparing top tails of administrative data and surveys, we find diverging average incomes, especially for non-wage incomes, and differing shapes. We discuss the implications of such discrepancies for our understanding of inequality and growth. JEL Classification Codes: D3; E01; N36; O54