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Estimation of Lorenz curves based on dummy variable regression

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  • Wang, Zheng-Xin
  • Zhang, Hai-Lun
  • Zheng, Hong-Hao

Abstract

We propose a new estimation method of the Lorenz curve based on dummy variable regression for granting clear economic connotations to parameters in the estimation of the Lorenz curve. The dummy variable regression model of the Lorenz curve is established by introducing dummy variables to group data about income level. On this basis, it is proved that the regression function is endowed with the convexity that the Lorenz curve should have. To verify the effectiveness of the new method, empirical study is carried out taking the income data of urban and rural residents in the Chinese Household Income Project Survey (CHIP) database as examples. In the empirical study, the proposed model is compared with several existing classical parameter models. The results indicate that the slope parameter of the model represents the cumulative income–population resilience of corresponding residents, and reflects the income structure of residents to some extent. Meanwhile, compared with classical parameter models, the newly proposed method has advantages of higher fitting precision and stronger adaptability.

Suggested Citation

  • Wang, Zheng-Xin & Zhang, Hai-Lun & Zheng, Hong-Hao, 2019. "Estimation of Lorenz curves based on dummy variable regression," Economics Letters, Elsevier, vol. 177(C), pages 69-75.
    • Handle: RePEc:eee:ecolet:v:177:y:2019:i:c:p:69-75
    DOI: 10.1016/j.econlet.2019.01.021
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    References listed on IDEAS

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    1. Villasenor, JoseA. & Arnold, Barry C., 1989. "Elliptical Lorenz curves," Journal of Econometrics, Elsevier, vol. 40(2), pages 327-338, February.
    2. Sarabia, José María & Prieto, Faustino & Jordá, Vanesa, 2015. "About the hyperbolic Lorenz curve," Economics Letters, Elsevier, vol. 136(C), pages 42-45.
    3. Kakwani, N C & Podder, N, 1973. "On the Estimation of Lorenz Curves from Grouped Observations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 278-292, June.
    4. Wang, ZuXiang & Smyth, Russell, 2015. "A hybrid method for creating Lorenz curves," Economics Letters, Elsevier, vol. 133(C), pages 59-63.
    5. Wang, ZuXiang & Smyth, Russell, 2015. "A piecewise method for estimating the Lorenz curve," Economics Letters, Elsevier, vol. 129(C), pages 45-48.
    6. Rohde, Nicholas, 2009. "An alternative functional form for estimating the Lorenz curve," Economics Letters, Elsevier, vol. 105(1), pages 61-63, October.
    7. Chotikapanich, Duangkamon, 1993. "A comparison of alternative functional forms for the Lorenz curve," Economics Letters, Elsevier, vol. 41(2), pages 129-138.
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    Cited by:

    1. Wang, Zheng-Xin & Jv, Yue-Qi, 2023. "Revisiting income inequality among households: New evidence from the Chinese Household Income Project," China Economic Review, Elsevier, vol. 81(C).
    2. Aktaev, Nurken E. & Bannova, K.A., 2022. "Mathematical modeling of probability distribution of money by means of potential formation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 595(C).

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    More about this item

    Keywords

    Income distribution; Lorenz curve; Dummy variable regression;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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