st: Your opinion on income groups and inflation

[Andrea Bennett <mac.stata@gmail.com>]

Dear Statalisters,

I wonder what you do think about the following issues:

1.
I have a cross-sectional panel data set with a time span of 10 years  
(5 complete surveys). The survey does NOT ask for (more or less)  
precise income but instead for income groups (e.g. between 3000 and  
4000 $). As this does cluster the income quite a bit I was wondering  
of how much use it would be to control for the inflation rate (which  
was rather low, about 1-2% p.a.)? Still, I tend to control for  
inflation since there is a gradual shift from lower income groups to  
higher income groups. Would you include the inflation adjustments or  
not?

2.
Do I need to treat these income groups as categorical data and  
therefore generate dummies for each income category? Do I also need to  
control for the highest income group with an additional dummy since it  
measures income>=10'000$? This just affects the df quite a bit, I  
think. How would you deal with such a variable?

3.
Related to the above question, I wonder how one usually deals with  
interval variables. I have a variable measuring the trust/confidence  
in the national government on a scale of 0–10 (1-point steps). Again,  
as I have learned it, I would have to include a dummy for each trust- 
level. Again, losing df is what brings me to ask you again. Do I need  
to generate dummies here or not?


Kind regards and many thanks for your consideration,

Andrea


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