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Consumption vs. Income

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Bruce D. Meyer and James X. Sullivan write,

The bottom deciles of consumption exceed those for income, suggesting under-reporting of income. There is a high and rising under-reporting rate for government transfers, a source of income that is particularly important at the bottom.

There is a lot of statistical deception about poverty, because transfer payments, subsidies, and in-kind payments are often excluded, either unintentionally or intentionally. This does not mean that nobody is poor. But exactly who is poor is very badly measured. And, among other things, we do not have good data on the high marginal tax rates that many poor people face.

Thanks to Tyler Cowen for the pointer.

CATEGORIES: Income Distribution

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Eli writes:

I have family in a poor, rural part of the US, and they occasionally employ people receiving government transfers for odd jobs and the like. It's very common for people to work until they earn the reporting threshold for Social Security. As soon as they are informed that their Social Security info is needed, they quit and find another employer. Using back-of-the-envelope calculations, we estimated that these people, after transfers, have an income of around $60,000, tax-free.

This is just an anecdote, but it leads me to believe that income underreporting is quite high.

Posted February 13, 2008 10:27 AM

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