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The Pareto law of incomes—an explanation and an extension

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  • Reed, William J.
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    Abstract

    A stochastic model for the generation of observed income distributions is used to provide an explanation for the Pareto law of incomes. Analysis of the model also yields a prediction of Paretian (power law) behaviour in the lower tail of the distribution and this is shown to occur in a number of empirical distributions. A tractable four-parameter distribution is derived, and shown to fit extremely well to a number of different empirical income distributions.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437102015078
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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 319 (2003)
    Issue (Month): C ()
    Pages: 469-486

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    Handle: RePEc:eee:phsmap:v:319:y:2003:i:c:p:469-486

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Pareto law; Income distribution; GBM; Mixture model; Double Pareto-lognormal distribution;

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    Cited by:
    1. Kristian Giesen & Jens Suedekum, 2012. "The size distribution across all 'cities': A unifying approach," ERSA conference papers ersa12p106, European Regional Science Association.
    2. Ramos, Arturo & Sanz-Gracia, Fernando & González-Val, Rafael, 2013. "A new framework for the US city size distribution: Empirical evidence and theory," MPRA Paper 52190, University Library of Munich, Germany.
    3. Hajargasht, Gholamreza & Griffiths, William E., 2013. "Pareto–lognormal distributions: Inequality, poverty, and estimation from grouped income data," Economic Modelling, Elsevier, vol. 33(C), pages 593-604.
    4. Pedro Gil & Fernanda Figueiredo, 2013. "Firm size distribution under horizontal and vertical innovation," Journal of Evolutionary Economics, Springer, vol. 23(1), pages 129-161, January.
    5. Segarra, Agustí & Teruel, Mercedes, 2012. "An appraisal of firm size distribution: Does sample size matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 314-328.
    6. Puente-Ajovin, Miguel & Ramos, Arturo, 2014. "On the parametric description of the French, German, Italian and Spanish city size distributions," MPRA Paper 55285, University Library of Munich, Germany.
    7. Toda, Alexis Akira, 2012. "The double power law in income distribution: Explanations and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 364-381.

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