Controlling for fixed effects in studies of income underreporting
Working paper
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https://hdl.handle.net/11250/3067266Utgivelsesdato
2023-05Metadata
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Sammendrag
The expenditure method of Pissarides and Weber (1989) [Journal of Public Economics, 39 (1), 17-
32) shows how one backs out measure of income underreporting by the self-employed by using
food consumption as trace of true income. In this paper we make a case for using panel data
and fixed effects estimation in such analysis, instead of OLS estimation. The main argument is
that fixed effects estimation addresses the problem of omitted variable bias in the
identification. We demonstrate the use of panel data and fixed effects estimation by using large
scale administrative register data on charitable donations, exploiting that the data can be
turned into a panel dataset. The results suggest that the estimation technique matters – fixed
effects estimates are smaller than OLS estimates.