Andrew Leigh is reporting on 1999 research showing that many high income earners wrongly place themselves in lower income deciles and many low income earners place themselves in a higher income decile than is justified by their actual income (also cross-posted at Core Economics).
In the past (p.16) I have used this data to suggest that some people who agree to survey propositions that above-average income earners pay more tax – as 41% of people are in the latest Essential Research survey – may get a nasty shock when they find the taxman raiding their wallets.
While I still think this is likely to be the case, asking people to put themselves into the correct income decile is a big ask. I would expect more general questions such as average, below average, or above average would yield more accurate results. Using data from the 2005 Australian Survey of Social Attitudes and comparing it to 2006 census
household family income data I found that accuracy improved but significant discrepancies remained.
There are some difficulties in making these comparisions. On my calculations the median census
household family income bracket is $52,000 to $62,000 a year. The AuSSA bracket was $52,000 to $77,999 a year, so some above median income households families earning $62,000 to $78,000 a year are deemed to be correctly classifying themselves as ‘average’. Also, respondents’ impressions are probably based on inferring income from apparent living standards, which due to factors such as household size, borrowing, and accumulated assets have an at best approximate relationship to income in a given year.
But in rough terms, it appears that most average and above average household income respondents correctly classify themselves, while those on below average incomes are less accurate. However given that there would be many retired people in this group, who have paid off their homes, are no longer supporting children, and receive generous treatment by the tax and welfare system, their living standard perceptions may be reliable enough.