Improving Models of Income Dynamics using Cross-Section-Information
AbstractBased 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.
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Bibliographic InfoArticle provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.
Volume (Year): 144 (2008)
Issue (Month): II (June)
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More information through EDIRC
income distribution; income dynamics; relative entropy;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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