Personal income distribution and inequality at the local level. An estimation for Spain using a tax microdata-based model

Abstract

Local income data is a key element to analyze residents’ standard of living and wellbeing as well as an important economic indicator, very used in a wide range of studies related to regional convergence, urban economics, fiscal federalism and spatial welfare analysis. Despite its importance, there is a lack of official data on local incomes and, most importantly, on local income distributions. In this paper we use official data on personal income tax returns and a reweighting procedure to derive a representative income sample at the local level. Unlike previous attempts in the literature to get local income estimates, the results obtained allow us to derive not only an average value of income but its local distribution, a valuable and informative tool for distributional and income inequality analysis. We apply this methodology to Spanish micro-data and illustrate its potential use in income inequality analysis by means of computed Gini and Atkinson coefficients for a set of municipalities.