24/4/2013: Systemic biases in income, consumption & savings surveys

A subtle, but important from policy and business strategy perspective paper from the Banca d'Italia, Working Paper No. 908, titled "Asking income and consumption questions in the same survey: what are the risks?" (April 2013) by Giulia Cifaldi and Andrea Neri.

The issue at hand is of relevance to:

• Marketing and market surveyors who aim to identify the relationship between sub-groups or categories of consumers in terms of their incomes and consumption, as well as savings;
• Policymakers concerned with use of surveys to accurately gauge savings and consumption (in the recent case in Ireland the issue relates to the accuracy of the estimates of required income expenditure and available disposable income in the case of Personal Insolvency Guidelines).

Per authors: "Sample surveys … focusing on income usually do collect some information on expenditure data. A main drawback of this practice is that it could let some researchers think that both sets of information have similar accuracy, as they are derived from the same survey. This paper provides an empirical investigation of the consequences of such an assumption.

We draw on the Survey of Household Income and Wealth (SHIW, thereafter) as a case study, since it collects information on both income and consumption. We combine this survey with the information coming from other surveys that are assumed to be more reliable than the SHIW for specific items."

Core findings:

• On average, "the underestimation of household income is lower than the one relating to consumption."
• "As a consequence, in the survey saving rates are likely to be overestimated," and  "…measurement error in income data is proportionally higher for high incomes."
• In the case of consumption data: "Household saving is likely to be overestimated, especially for households in the low income classes."
• Authors also "find evidence that measurement error may bias the relationship between household savings and its determinants."

Link to the study: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td13/td908_13/en_td908/en_tema_908.pdf