Modeling wealth with multiple observations of income: Redesign of the sample for the 2001 Survey of Consumer Finances

Abstract

This paper reports on the research that underlies the redesign of a key part of the sample for the Survey of Consumer Finances (SCF) for the 2001 wave of the survey, building on the history of sampling research for the survey dating back to the 1983 wave. The sample for the SCF includes an oversample of relatively wealthy families selected from statistical records derived from individual tax returns, using a stratified design based on a mapping from observations of components of income to an estimate of wealth. The mapping is imperfect, and three factors seem particularly important: First, at any given time, rates of return that connect assets with capital income may vary widely across individuals depending on luck, information, and local economic conditions. Second, some assets, such as 401(k) accounts and residences, do not generate returns that are observable on a regular basis. Finally, temporally transitory factors, such as the timing of income receipts or unusually good luck, may cause the income that is observed in a given period to have a noisy relationship to the underlying assets that generate those returns. It is very difficult to address the first two concerns directly. However, the third can be addressed by using multiple observations of income to model wealth; an effort to do so is the principal focus here.