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Pareto's Law of Income Distribution: Evidence for Germany, the United Kingdom, and the United States

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F. Clementi
M. Gallegati

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Abstract

We analyze three sets of income data: the US Panel Study of Income Dynamics PSID), the British Household Panel Survey (BHPS), and the German Socio-Economic Panel (GSOEP). It is shown that the empirical income distribution is consistent with a two-parameter lognormal function for the low-middle income group (97%-99% of the population), and with a Pareto or power law function for the high income group (1%-3% of the population). This mixture of two qualitatively different analytical distributions seems stable over the years covered by our data sets, although their parameters significantly change in time. It is also found that the probability density of income growth rates almost has the form of an exponential function.

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File URL: http://arxiv.org/abs/physics/0504217
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Paper provided by arXiv.org in its series Quantitative Finance Papers with number physics/0504217.

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Date of creation: Apr 2005
Date of revision: Mar 2006
Publication status: Published in Chatterjee, A., Yarlagadda, S., and Chakrabarti B. K. (2005). Econophysics of Wealth Distributions. Milan: Springer-Verlag Italia. (pp. 3-14)
Handle: RePEc:arx:papers:physics/0504217

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Levy, Moshe, 2003. "Are rich people smarter?," Journal of Economic Theory, Elsevier, vol. 110(1), pages 42-64, May. [Downloadable!] (restricted)
  2. Giulio Bottazzi & Angelo Secchi, 2002. "On the Laplace Distribution of Firms Growth Rates," LEM Papers Series 2002/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  3. John Sutton, 2001. "The Variance of Firm Growth Rates: The Scaling Puzzle," STICERD - Economics of Industry Papers 27, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  4. Kyungsik Kim & Seong-Min Yoon, 2004. "Power Law Distributions in Korean Household Incomes," Quantitative Finance Papers cond-mat/0403161, arXiv.org. [Downloadable!]
  5. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Quantitative Finance Papers cond-mat/9804100, arXiv.org. [Downloadable!]
  6. Geoff Willis & Juergen Mimkes, 2004. "Evidence for the Independence of Waged and Unwaged Income, Evidence for Boltzmann Distributions in Waged Income, and the Outlines of a Coherent Theory of Income Distribution," Microeconomics 0408001, EconWPA. [Downloadable!]
  7. Fabio Clementi & Mauro Gallegati, 2005. "Power Law Tails in the Italian Personal Income Distribution," Microeconomics 0505005, EconWPA. [Downloadable!]
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  8. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Quantitative Finance Papers cond-mat/9702082, arXiv.org. [Downloadable!]
  9. T. Di Matteo & T. Aste & S. T. Hyde, 2003. "Exchanges in complex networks: income and wealth distributions," Quantitative Finance Papers cond-mat/0310544, arXiv.org. [Downloadable!]
  10. Makoto Nirei & Wataru Souma, 2007. "A Two Factor Model Of Income Distribution Dynamics," Review of Income and Wealth, Blackwell Publishing, vol. 53(3), pages 440-459, 09. [Downloadable!] (restricted)
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Cited by:
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  1. Yi Wen, 2009. "When does heterogeneity matter?," Working Papers 2009-024, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical Mechanics of Money, Wealth, and Income," Quantitative Finance Papers 0905.1518, arXiv.org. [Downloadable!]
  3. Matteo Barigozzi & Lucia Alessi & Marco Capasso & Giorgio Fagiolo, 2009. "The Distribution of Households Consumption-Expenditure Budget Shares," Working Paper Series 1061, European Central Bank. [Downloadable!]
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