Estimating Small Area Income Deprivation: An Iterative Proportional Fitting Approach

Small area estimation and in particular the estimation of small area income deprivation has potential value in the development of new or alternative components of multiple deprivation indices. These new approaches enable the development of income distribution threshold based as opposed to benefit count based measures of income deprivation and so enable the alignment of regional and national measures such as the Households Below Average Income with small area measures. This paper briefly reviews a number of approaches to small area estimation before describing in some detail an iterative proportional fitting based spatial microsimulation approach. This approach is then applied to the estimation of small area HBAI rates at the small area level in Wales in 2003-5. The paper discusses the results of this approach, contrasts them with contemporary ‘official’ income deprivation measures for the same areas and describes a range of ways to assess the robustness of the results.