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st: Your opinion on income groups and inflation

From   Andrea Bennett <>
Subject   st: Your opinion on income groups and inflation
Date   Sat, 7 Jun 2008 19:18:31 +0200

Dear Statalisters,

I wonder what you do think about the following issues:

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?

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?

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,


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