retirement income. Mixed income includes all income from self-employment, including employment in the agricultural sector.<sup>9</sup> Capital income is defined as the sum of rental and interest income, when these are available - not all years in the survey data include those components. Finally, imputed rent is estimated at the household level for the entire period using different methodologies, and we divide it equally among all adults in the household. Notably, our measure of pre-tax income excludes several income components that are particularly important for low-income households – direct government transfers, transfers from other household and remittances are all excluded from our income definition, despite being usually included in broader income measures used to calculate official poverty and inequality estimates.

# **4.2.2 Income in tax records**

We use micro-data on individual, non-incorporated taxpayers ( _Personas Naturales_ ) to complement the income distribution from household surveys. We provide a thorough explanation of the process of generating pre-tax income from tax records in Appendix D; here we summarize the key decisions taken in building the income aggregate.

Total individual income in tax records is comprised of four components: wages, mixed income; capital income and undistributed corporate profits. Whenever we observe both self-declared and third-party information for a given income source, we take the maximum value available. Wages are computed as the maximum value observed for each taxpayer between the third-party withholding information and the self-declared PIT (when individuals file the yearly declaration). It is adjusted to include additional components (13th and 14th salaries) that are non-taxable up to certain amounts. Mixed income is similarly obtained by comparing self-declared values in PIT forms and third-party withholding, and taking the maximum value.<sup>10</sup> Income from capital is defined as the sum of dividends, interests and rental income, all available through third-party withholding forms.<sup>11</sup> Finally, we assign to each individual-

> 9As we document in Table A.1, in the period 2004-2013 self-employment income from agricultural activities was measured using a separate module. The microdata for these specific modules is not available, only the total income measured in them. In the period when these modules were in place, income from agricultural self-employment were extremely large and inconsistent with other periods. In Appendix F we explain how we winsorize observations and adjust income from these modules to replicate aggregates similar to other years.

> 10We also compare values of declared revenue from commercial activities with third-party information including VAT withholding and exports. Whenever third-party values are larger, we add these additional undeclared revenues to the individual. Since these are not net income but gross revenue, in these cases we impute implicit costs by using median profit margins declared by taxpayers with activity in the same economic sector.

> 11Following most papers in the literature, we do not include income from capital gains in our income aggregate, particularly since also assigning undistributed corporate profits might result in double counting.

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