# **5.2 Matching aggregates to national accounts**

After the previous step, we have a comprehensive distribution of income for adults in Honduras, for each year in the period 2003-2019, constructed from microdata. It has been extensively documented, nonetheless, that these income aggregates built from microdata often fail to capture the same levels of income registered in national accounts: De Rosa _et al._ (2022), for example, show that income in survey data complemented with administrative tax records is often only 40-60% of the total pre-tax net national income in selected Latin American countries. We show the same gap exists for Honduras: in Figure 1a, we plot the ratio between total Net National Income (NNI) in national accounts and in our microdata. The gap is relatively stable over the years: each income in national accounts is 30-50% than what we observe year, larger using microdata.<sup>16</sup> Furthermore, we also document that this gap is vastly different across components of total income. In Figure 1b, we plot for each year the same ratio between national accounts and microdata aggregates for four components of income: wages, mixed income, imputed rent and capital income. While aggregate wages are systematically larger by approximately 20-30% each year, mixed income is often very similar in both sources, particularly for recent years when deviations are at the order of 1 - 5%, and imputed rents are often smaller in the national accounts by 10-20%. The largest driver of differences are income from capital – we observe three to five times more income from capital in the national accounts compared to microdata, even when accounting for undistributed corporate profits assigned to individuals.<sup>17</sup> The last step to obtain the full income distribution is to multiply each of the four income components described above by these adjustment factors, such that total income in the microdata, as well as each of its components, matches aggregates in national accounts.<sup>18</sup> We note that one key implication of the particularly large gap between capital income in the microdata and national account is that, since capital income is predominant at the very top of the distribution, our adjustment to national accounts will substantially increase measurements of concentration of income at the top when compared to measurements that consider only microdata.

> 16 We provide levels of income in national accounts data in Appendix C.

> 17When adjusting microdata to national accounts, we sum distributed capital income and corporate profits in the microdata, and match it to the sum of household property income and corporate profits in the national accounts. We discuss in more details these decisions in Appendix C; the main reason for making the joint adjustment is that, when compared to other countries in the region and worldwide, the share of corporate profits in total income in the National Accounts is very large in Honduras and while property income is often negative. The sum of the two components is more in line with other countries.

> 18Following the DINA guidelines, we also distribute production taxes proportionally to income, so it has no bearing on inequality measures but it does affect income levels.

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