The Distribution of Income of Self-employed, Entrepreneurs and Professions as Revealed from Micro Income Tax Statistics in Germany

Merz: The Distribution of Income of Self-employed, Entrepreneurs and Professions

Differential response rates: Sometimes a relatively high level of non-response by self-
employed persons tends to support the assumption that they are inclined to conceal
information about their finances. This might often not be the case of non co-
operativeness but can also reflect the inability to provide the income data just in form
the survey is asking for. Examples are problems of disentangling personal and business
expenditures connected with only delayed tax information with the necessary final
business and personal deductions and taxes.

Time lags between the accounting and the survey periods: In addition to delayed tax and
business accounting information to finally define the income situation, self-employed
income may be highly variable across short periods and connected with trade or
business cycles. Therefore data of a short period may be an unreliable representation of
business income. In addition, the questionnaire period (say a month or a calendar year)
might not fit into the accounting period or may not be available (business year).

The concept of earnings and the measurement of profits: income concept from
household survey might differ from income concepts of trade and business and figures
emerging as net profits in business accounts may reflect different and business specific
computations.

Collection and treatment of taxes: The collection and treatment of data about tax
payments may bias the situation because of the mismatch of the time periods covered by
the profit reported and the payments made to the tax authorities.

Under-reporting of income: In addition to the argumentation with regard to differential
response rates above (lack of requisite information), much under-reporting is associated
with the discussion of the informal economy which will be finally in the shadow
anyhow.

Definition of self-employed: Because of multi-income sources on the personal level a
definite grouping is difficult. The predominant source concept is one possibility but
there might be additional uncertainty about the work status (see the discussion of the
‘quasi self-employed’ (Scheinselbstandigkeit).

Definition of professions: Though in Germany there is a given legal definition by the
Income Tax Law which one is a professional status(Freier Beruf) there are a number of
so-called similar occupations which had and have to be decided by the court if or not a
professional status is given. The problem will become much more complex if there are
international comparisons, where such legal definitions are lacking.

Small population and group sizes: The smaller a certain group is in the population the
more difficult it is to have a representative part in a sample. For instance, with roughly
less than 10% self-employed and less than 2% professions of the labour force in
Germany small samples might not provide enough observations for representative and
significant results.

To summarize: To analyze the income situation and distribution of the self-employed
including the professions, in particular, an ambitious data base is required if all these
problems are solved at least to a certain extent.

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