IDEAS home Printed from https://ideas.repec.org/a/ses/arsjes/2008-ii-1.html
   My bibliography  Save this article

Improving Models of Income Dynamics using Cross-Section-Information

Author

Listed:
  • Robert Aebi
  • Klaus Neusser
  • Peter Steiner

Abstract

Based on a relative entropy approach, this paper proposes a method to estimate or update transition matrices using just cross-sectional observations at two points in time. The method is then applied to explain the development of the US income distribution. Starting from three hypothesized transition matrices and a transition matrix estimated from the PSID data, we show how these matrices must be adjusted in the light of the cross-sectional information. Finally, we explore the consequences of these updated transition matrices for the future development of the US income distribution.

Suggested Citation

  • Robert Aebi & Klaus Neusser & Peter Steiner, 2008. "Improving Models of Income Dynamics using Cross-Section-Information," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 144(II), pages 117-151, June.
    • Handle: RePEc:ses:arsjes:2008-ii-1
    as

    Download full text from publisher

    File URL: http://www.sjes.ch/papers/2008-II-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. White,Halbert, 1996. "Estimation, Inference and Specification Analysis," Cambridge Books, Cambridge University Press, number 9780521574464.
    2. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    3. Aebi, Robert & Neusser, Klaus & Steiner, Peter, 1999. "Evaluating Theories of the Income Dynamics: A Probabilistic Approach," Economics Series 61, Institute for Advanced Studies.
    4. Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics.
    5. Adelman, Irma & Morley, Samuel & Schenzler, Christoph & Warning, Matthew, 1994. "Estimating income mobility from census data," Journal of Policy Modeling, Elsevier, vol. 16(2), pages 187-213, April.
    6. Robert Aebi & Klaus Neusser & Peter Steiner, 2006. "A Large Deviation Approach to the Measurement of Mobility," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(II), pages 195-222, June.
    7. Burkhauser, Richard V. & Amy Crews Cutts & Mary C. Daly & Stephen P. Jenkins, 1999. "Testing the Significance of Income Distribution Changes over the 1980s Business Cycle: A Cross-National Comparison," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(3), pages 253-272, May-June.
    8. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Erik Figueiredo & Flávio Ziegelmann, 2010. "The dynamics of the Brazilian income," Economics Bulletin, AccessEcon, vol. 30(2), pages 1249-1260.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. de Figueiredo, Erik Alencar & Ziegelmann, Flávio Augusto, 2010. "Estimating income mobility using census data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4897-4903.
    2. Fernández-Villaverde, J. & Rubio-Ramírez, J.F. & Schorfheide, F., 2016. "Solution and Estimation Methods for DSGE Models," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 527-724, Elsevier.
    3. Nakashima, Kiyotaka & Ogawa, Toshiaki, 2020. "The Impacts of Strengthening Regulatory Surveillance on Bank Behavior: A Dynamic Analysis from Incomplete to Complete Enforcement of Capital Regulation in Microprudential Policy," MPRA Paper 99938, University Library of Munich, Germany.
    4. Laczó, Sarolta & Rossi, Raffaele, 2020. "Time-consistent consumption taxation," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 194-220.
    5. Pratap, Sangeeta & Urrutia, Carlos, 2004. "Firm dynamics, investment and debt portfolio: balance sheet effects of the Mexican crisis of 1994," Journal of Development Economics, Elsevier, vol. 75(2), pages 535-563, December.
    6. D’Erasmo, P. & Mendoza, E.G. & Zhang, J., 2016. "What is a Sustainable Public Debt?," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2493-2597, Elsevier.
    7. Rodolphe Dos Santos Ferreira & Frédéric Dufourt, 2013. "On Stabilization Policy in Sunspot-Driven Oligopolistic Economies," AMSE Working Papers 1337, Aix-Marseille School of Economics, France, revised 30 Jun 2013.
    8. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963–2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    9. Aldrich, Eric M. & Fernández-Villaverde, Jesús & Ronald Gallant, A. & Rubio-Ramírez, Juan F., 2011. "Tapping the supercomputer under your desk: Solving dynamic equilibrium models with graphics processors," Journal of Economic Dynamics and Control, Elsevier, vol. 35(3), pages 386-393, March.
    10. Alisdair McKay, 2011. "Household Saving Behavior and Social Security Privatization," Boston University - Department of Economics - Working Papers Series WP2011-027, Boston University - Department of Economics.
    11. Martin, Fernando M., 2015. "Debt, inflation and central bank independence," European Economic Review, Elsevier, vol. 79(C), pages 129-150.
    12. Alfaro, Laura & Kanczuk, Fabio, 2009. "Optimal reserve management and sovereign debt," Journal of International Economics, Elsevier, vol. 77(1), pages 23-36, February.
    13. Yongsung Chang & Sun-Bin Kim & Bo Hyun Chang, 2015. "Pareto Weights in Practice: Income Inequality and Tax Reform," 2015 Meeting Papers 224, Society for Economic Dynamics.
    14. Heer Burkhard & Maußner Alfred, 2011. "Value Function Iteration as a Solution Method for the Ramsey Model," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(4), pages 494-515, August.
    15. Jason Matthew DeBacker, 2015. "Flip‐Flopping: Ideological Adjustment Costs In The United States Senate," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 108-128, January.
    16. Yamada, Tomoaki, 2011. "A politically feasible social security reform with a two-tier structure," Journal of the Japanese and International Economies, Elsevier, vol. 25(3), pages 199-224, September.
    17. De loecker, Jan & Asker, John & Collard-Wexler, Allan, 2011. "Productivity volatility and the misallocation of resources in developing economies," CEPR Discussion Papers 8469, C.E.P.R. Discussion Papers.
    18. Carlo A. Favero, 2007. "Model Evaluation in Macroeconometrics: from early empirical macroeconomic models to DSGE models," Working Papers 327, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    19. Greenwood, Jeremy & Guner, Nezih & Santos, Cezar & Kocharakov, Georgi, 2015. "Technology and the Changing Family: A Unified Model of Marriage, Divorce, Educational Attainment and Married Female Labor-Force," CEPR Discussion Papers 10434, C.E.P.R. Discussion Papers.
    20. Marta González-Torrabadella & Josep Pijoan-Mas, 2006. "Flat tax reforms: a general equilibrium evaluation for Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 317-351, May.

    More about this item

    Keywords

    income distribution; income dynamics; relative entropy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ses:arsjes:2008-ii-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kurt Schmidheiny (email available below). General contact details of provider: https://edirc.repec.org/data/sgvssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.