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Is the Distribution of Income Compatible with a Stable Distribution?

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  • John K. Dagsvik
  • Bjørn H. Vatne

    ()
    (Statistics Norway)

Abstract

Mandelbrot (1961) proposed to apply the class of Pareto-Levy distributions - which belong to the Stable distributions - as a framework for modelling income distributions. He also presented theoretic arguments in favor of the Pareto-Levy distributions. In this paper we provide additional theoretical justification for this class of distributions. We also use micro data on individual market income to estimate the parameters of a Pareto-Levy distribution. Several estimation methods have been applied. The estimated Pareto-Levy distribution appears to fit the data well.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 246.

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Date of creation: Jan 1999
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Handle: RePEc:ssb:dispap:246

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Keywords: Stable distributions; Pareto-Levy distributions; Income distributions;

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References

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  1. van Dijk, Herman K & Kloek, Teun, 1980. "Inferential Procedures in Stable Distributions for Class Frequency Data on Incomes," Econometrica, Econometric Society, vol. 48(5), pages 1139-48, July.
  2. McCulloch, J Huston, 1997. "Measuring Tail Thickness to Estimate the Stable Index Alpha: A Critique," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 74-81, January.
  3. Rolf Aaberge, 1995. "Choosing Measures of Inequality for Empirical Applications," Discussion Papers 158, Research Department of Statistics Norway.
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Cited by:
  1. Jess Benhabib & Alberto Bisin, 2009. "The distribution of wealth and fiscal policy in economies with finitely lived agents," NBER Working Papers 14730, National Bureau of Economic Research, Inc.
  2. Dieter von Fintel, 2006. "Earnings bracket obstacles in household surveys – How sharp are the tools in the shed?," Working Papers 08/2006, Stellenbosch University, Department of Economics.

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