DT 10/22 - Beyond tax-survey combination: inequality and the blurry household-firm border.

Inequality evidence based on surveys, tax records, or their combination often result in divergent trends, fueling the distributional debate in Latin America. Beyond the relative strengths and weaknesses of these sources, tax-survey data still face two important shortcomings: they are unable to account for the entirety of household or national income, and they are affected by firm owners' decisions about the distribution of profits, changing which incomes researchers can actually observe. Based on unique data which matches social security data, household surveys, personal income tax records, and firm tax records, we assess inequality trends in Uruguay in light of these issues. We show that increasing profit-distribution behavior by firms pushes tax-survey top shares upwards, but that this trend is offset when undistributed profits are accounted for. Although top income groups benefited to a greater extent from recent economic growth, overall inequality decreased in tax-survey, household income, and national income series.