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Power law tails in the Italian personal income distribution

Author

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  • Clementi, F.
  • Gallegati, M.

Abstract

We investigate the shape of the Italian personal income distribution using microdata from the Survey on Household Income and Wealth, made publicly available by the Bank of Italy for the years 1977–2002. We find that the upper tail of the distribution is consistent with a Pareto-power law type distribution, while the rest follows a two-parameter lognormal distribution. The results of our analysis show a shift of the distribution and a change of the indexes specifying it over time. As regards the first issue, we test the hypothesis that the evolution of both gross domestic product and personal income is governed by similar mechanisms, pointing to the existence of correlation between these quantities. The fluctuations of the shape of income distribution are instead quantified by establishing some links with the business cycle phases experienced by the Italian economy over the years covered by our dataset.

Suggested Citation

  • Clementi, F. & Gallegati, M., 2005. "Power law tails in the Italian personal income distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 350(2), pages 427-438.
  • Handle: RePEc:eee:phsmap:v:350:y:2005:i:2:p:427-438
    DOI: 10.1016/j.physa.2004.11.038
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    References listed on IDEAS

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    1. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
    2. Drăgulescu, Adrian & Yakovenko, Victor M., 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 213-221.
    3. Reed, William J., 2003. "The Pareto law of incomes—an explanation and an extension," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 319(C), pages 469-486.
    4. Hideaki Aoyama & Yuichi Nagahara & Mitsuhiro P. Okazaki & Wataru Souma & Hideki Takayasu & Misako Takayasu, 2000. "Pareto's Law for Income of Individuals and Debt of Bankrupt Companies," Papers cond-mat/0006038, arXiv.org.
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    More about this item

    Keywords

    Personal income; Pareto law; Lognormal distribution; Income growth rate; Business cycle;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D2 - Microeconomics - - Production and Organizations
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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