Is Environmental Income Reporting Evasive in Household Surveys? Evidence From Rural Poor in Laos

- We detect and quantify the extent of environmental income underreporting.
- Modified Engel curve analysis confirms underreporting by over 50%.
- Threat to food security drives poor to illegally extract environmental resource.
- Rural household surveys should capture consumption data to measure poverty.
- Environmental conservation and rural development policies must be complementary.

Literature has consistently reiterated that the self-employed non-poor underreport their business income to tax authorities and in household surveys. In this work, we measure the extent to which poor households engaging in illegal environmental activities underreport income in Laos. We use a two year panel data and apply the Engel curve to detect and estimate the reporting gap. We further use a switching probit regression to identify the factors of income underreporting and its impact on income poverty outcomes. Results show that on an average, rural households who earn at least a quarter of their income from the environment underreport by over 50% in household surveys resulting in overestimation of income poverty. Moreover, we find that a perceived threat to food security drives rural poor to engage in illegal environmental extraction.