Melbourne Institute of Applied Economic and Social Research - Research Publications
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ItemMeasuring the Adequacy of Retirement Savings(Wiley, 2018-12-01)This paper introduces four metrics for quantifying the adequacy of retirement savings, taking into account all major sources of retirement income. We then apply them to projections of expected future retirement income streams of a representative sample of the Australian population aged 40 and above. We find that omitting one or more pillars of savings significantly biases estimates of retirement savings adequacy. We also find that the four metrics are only weakly correlated with key commonly used indicators of financial well‐being, in particular current income and net worth. Our analysis also points to several shortcomings of the widely used income replacement ratio as an indicator of savings adequacy.
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ItemTransitioning from an Historical to a Contemporary Use of Tax Record Data for Measuring Top Incomes in Australia(WILEY, 2018-06)A major literature using tax data measures the share of income captured by the top of the income distribution. We correct existing Australian estimates by removing employers’ social contributions from the denominator and explain the limitations of using public record tax tables to capture the numerator. We show that Australian Tax Office unit record sample data are only able to accurately measure incomes of top income groups below the top 1 per cent. We conclude that greater access to the entire unit tax record population will be necessary to bring Australian research in this area up to that in the United States and United Kingdom.
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ItemSurvey under-coverage of top incomes and estimation of inequality: what is the role of the UK’s SPI adjustment?(Wiley, 2018-06)Survey under-coverage of top incomes leads to bias in survey-based estimates of overall income inequality. Using income tax record data in combination with survey data is a potential approach to address the problem; we consider here the UK’s pioneering ‘SPI adjustment’ method that implements this idea. Since 1992, the principal income distribution series (reported annually in Households Below Average Income) has been based on household survey data in which the incomes of a small number of ‘very rich’ individuals are adjusted using information from ‘very rich’ individuals in personal income tax return data. We explain what the procedure involves, reveal the extent to which it addresses survey under- coverage of top incomes, and show how it affects estimates of overall income inequality. More generally, we assess whether the SPI adjustment is fit for purpose and consider whether variants of it could be employed by other countries.
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ItemTop incomes and inequality in the UK: reconciling estimates from household survey and tax return data(Oxford University Press, 2018-04-01)We provide the first systematic comparison of UK inequality estimates derived from tax data (World Wealth and Income Database) and household survey data (the Households Below Average Income [HBAI] subfile of the Family Resources Survey). We document by how much existing survey data underestimate top income shares relative to tax data. Exploiting the flexibility that access to unit-record survey data provides, we then derive new top-income-adjusted data. These data enable us to: better track tax-data-estimated top income shares; change the definitions of income, income-sharing unit, and unit of analysis used and thereby undertake more comparable cross-national comparisons (we provide a UK-US illustration); and examine UK inequality levels and trends using four summary indices. Our estimates reveal a greater rise in the inequality of equivalized gross household income among all persons between the mid-1990s and late 2000s than shown by the corresponding HBAI series, especially between 2004/05 and 2007/08.undertake more comparable cross-national comparisons (we provide a UK-US illustration); and examine UK inequality levels and trends using four summary indices. Our estimates reveal a greater rise in the inequality of equivalized gross household income among all persons between the mid-1990s and late-2000s than shown by the corresponding HBAI series, especially between 2004/05 and 2007/08.