Countless of studies have found that the income to self-employment is lower than the income of salaryemployment, however measuring against consumption a mismatch of the relation between income and consumption occur. That is the self-employed generally have a higher consumption but to a lower income. This paper applies the consumption function and methodology developed by Pissarides and Weber(1989) on a large-scale longitudinal dataset, the British Household Panel Survey(BHPS), to describe and measure the percentage of income underreporting of the self-employed individuals in the United Kingdom between 1991 and 2008 Testing the method against different sets of assumptions, theories and datasets, this study finds that the self-employed male in the UK underreport income by 36,22% and the self-employed female by 34,57%. These findings are in line with similar studies measuring income underreporting in the United Kingdom, but also with studies applying the same methodology in other countries. The general assumption from previous studies is that the self-employed women do not underreport income, or do so by an insignificant amount. Against these results this study finds strong significant evidence that the self-employed women underreport income by at least as much as the self-employed man and that this is also significant testing against different sets of assumptions and datasets. Apart from the original method used, an alternative method of measuring income underreporting is presented and applied in this paper. The method shows some quite astonishing results against previous literature and findings, where the reported income of the self-employed man on average is underreported by 69% and the self-employed women by 119%.
|Educations||MSc in Finance and Accounting, (Graduate Programme) Final Thesis|
|Number of pages||115|