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How would I calculate the total UK household income? I want to be able to estimate what a flat 10% income tax would generate (with no personal allowance or other tax breaks).

Not that I agree with this idea!

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    $\begingroup$ I guess you know this already, but changing the income tax rate will change peoples' incentives to work. If you reduce the tax rate and this induces more people to work then average household income will increase. $\endgroup$ – Ubiquitous Aug 11 '16 at 19:30
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How about multiplying the average UK household income with the number of households? Both of these should be available from government statistics.

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    $\begingroup$ A quick google gives £23,556 average income and 26.7 million households for a total of £629 billion. $\endgroup$ – paj28 Aug 10 '16 at 8:52
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The more unequal the society, the more biased the calculation will be by using averages. In other words, the more different the median and the mean are, the more biased the calculation will be.

As such, I recommend you use proper survey data. Ideally, if you can find a random sample of UK households that provides data on household income, then an unbiased estimation of total UK household income will be equal to the:

sum of all the income of households in the dataset divided by the ratio of households in sample with respect to households in the UK

Naturally, finding random samples is not easy. But many surveys provide weights (usually Inverse probability Weights which correct for selection issues.)

For the UK there are plenty of options. You can access freely to the British Household Panel Survey and its newer version, Understanding Society. They provide good data on households income, from all income sources, and include weights too. You can access them here.

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First, you'd have to define what a "household" is. But let's say you've already done that. Then, you would take the "average household income" and multiply that by the number of households. This would give you the "total household income".

AVERAGE household income is not a good value to work with, because the "filthy rich" households greatly skew the calculation of "average household income". "Median Household Income" is a much better single number to work with because it gives a much better idea of how poor households actually are. Again, rich households greatly skew the "average household income" figure.

Ideally, it would be best if you could break households into quintiles or, hopefully, something much finer of a breakdown than that. This would give a better idea of how much 10% would hurt each group.

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  • $\begingroup$ While a social planner should definitely take into account how much a tax would hurt median households, the question was not about this. Nevertheless I will not return the downvote. $\endgroup$ – Giskard Aug 14 '16 at 18:00
  • $\begingroup$ @denesp It is always best to let the questioner decide if an answer is good or bad. As you can see, I directly and clearly answered the question in the very first paragraph. The fact that I answered it is undeniable. The later sentences are to provide information the questioner may not have considered. Your "down-vote" would be arrogant and disingenuous...especially since you are not the questioner. $\endgroup$ – Inquisitive Aug 14 '16 at 18:05

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