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

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Author Info
Fabio Clementi (Department of Public Economics, University of Rome 'La Sapienza')
Mauro Gallegati (Department of Economics, Università Politecnica delle Marche)

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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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Publisher Info
Paper provided by EconWPA in its series Microeconomics with number 0505006.

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Length: 16 pages
Date of creation: 18 May 2005
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Handle: RePEc:wpa:wuwpmi:0505006

Note: Type of Document - ps; pages: 16
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Web page: http://129.3.20.41

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Related research
Keywords: Personal income; Lognormal distribution; Pareto's law; Income growth rate;

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Find related papers by JEL classification:
D1 - Microeconomics - - Household Behavior
D2 - Microeconomics - - Production and Organizations
D3 - Microeconomics - - Distribution
D4 - Microeconomics - - Market Structure and Pricing

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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. 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!]
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  3. Kyungsik Kim & Seong-Min Yoon, 2004. "Power Law Distributions in Korean Household Incomes," Quantitative Finance Papers cond-mat/0403161, arXiv.org. [Downloadable!]
  4. 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!]
  5. 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!]
  6. 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!]
  7. 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!]
  8. Levy, Moshe, 2003. "Are rich people smarter?," Journal of Economic Theory, Elsevier, vol. 110(1), pages 42-64, May. [Downloadable!] (restricted)
  9. Fabio Clementi & Mauro Gallegati, 2005. "Power Law Tails in the Italian Personal Income Distribution," Microeconomics 0505005, EconWPA. [Downloadable!]
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  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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