Measure for Measure: Comparing Survey Based Estimates of Income and Consumption for Rural Households

Abstract This paper uses a large database of surveys of household incomes to characterize income underreporting in household surveys in low- and middle-income countries. The objective is to document (a) the extent of this underreporting, and (b) whether and how it varies systematically with respondent, household, income, and survey design features. Drawing on rural household data from 20 developing and transition countries, and using consumption expenditure as a benchmark, results indicate that the observed income/consumption ratios are very small, being on average around 0.76. Results suggest that income underreporting is systematically associated with household and survey characteristics. In particular, the degree of underreporting is strongly associated with the income source, with agricultural income being the component suffering more than any other components from underreporting. The analysis also provides evidence supporting the well-established proposition that underreporting tends to increase with household welfare: richer households appear to underreport income more. Implications for survey design and for future research are drawn.