The Tail That Wags: Differences in Effective Right Tail Coverage and Estimates of Wealth Inequality

Authors: Arthur B. Kennickell

Publication: The Journal of Economic Inequality. vol. 17, no. pp. 443–459

Date: December 2019

Abstract:

This paper focuses on the sensitivity of survey-based estimates of wealth inequality to the quality of the measurement of the upper tail of the distribution. Using data from the 2013 Survey of Consumer Finances (SCF), it develops a series of illustrative examples to highlight some of the problems in making comparisons of wealth inequality measures when there are specific defects in the measurement of the upper tail of the distribution. The results presented strongly indicate that in the absence of effective controls on the measurement of the upper tail of the wealth distribution, great caution should be the rule in the interpretation of most commonly used measures of wealth inequality from a given survey, comparison of such measures across the waves of the survey, and perhaps even more strongly, comparison across independently designed and managed surveys. A graphical decomposition of the 2013 SCF wealth distribution provides additional insight into the underlying cause of the sensitivity of the inequality measures. The paper concludes with a brief outline of a research program for improving the ability of surveys to provide more meaningful estimates of inequality measures.

Link: The Tail That Wags: Differences in Effective Right Tail Coverage and Estimates of Wealth Inequality