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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)

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://128.118.178.162/eps/mic/papers/0505/0505006.ps.gz
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Bibliographic 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
Date of revision:
Handle: RePEc:wpa:wuwpmi:0505006

Note: Type of Document - ps; pages: 16
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Web page: http://128.118.178.162

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

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References

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Citations

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Cited by:
  1. Pierpaolo Andriani & Bill McKelvey, 2007. "Beyond Gaussian averages: redirecting international business and management research toward extreme events and power laws," Journal of International Business Studies, Palgrave Macmillan, vol. 38(7), pages 1212-1230, December.
  2. Barigozzi, Matteo & Alessi, Lucia & Capasso, Marco & Fagiolo, Giorgio, 2012. "The distribution of household consumption-expenditure budget shares," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 69-91.
  3. Frank Cowell, 2011. "Inequality among the wealthy," LSE Research Online Documents on Economics 43897, London School of Economics and Political Science, LSE Library.
  4. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
  5. Alberto Russo, 2009. "On the evolution of the Italian bank branch distribution," Economics Bulletin, AccessEcon, vol. 29(3), pages 2063-2078.
  6. Giorgio Fagiolo & Lucia Alessi & Matteo Barigozzi & Marco Capasso, 2010. "On the distributional properties of household consumption expenditures: the case of Italy," Empirical Economics, Springer, vol. 38(3), pages 717-741, June.
  7. Yi Wen, 2009. "When does heterogeneity matter?," Working Papers 2009-024, Federal Reserve Bank of St. Louis.
  8. Chakrabarti, Anindya S. & Chakrabarti, Bikas K., 2010. "Statistical theories of income and wealth distribution," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(4), pages 1-31.
  9. Matteo Barigozzi & Lucia Alessi & Marco Capasso & Giorgio Fagiolo, 2008. "The Distribution of Consumption-Expenditure Budget Shares. Evidence from Italian Households," LEM Papers Series 2008/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  10. Drechsler, Jörg & Kiesl, Hans, 2014. "Beat the heap - an imputation strategy for valid inferences from rounded income data," IAB Discussion Paper 201402, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  11. Lin Ma, 2014. "Globalization And Top Income Shares," Working Papers 14-07, Center for Economic Studies, U.S. Census Bureau.
  12. L. Crosato & P. Ganugi, 2007. "Statistical regularity of firm size distribution: the Pareto IV and truncated Yule for Italian SCI manufacturing," Statistical Methods and Applications, Springer, vol. 16(1), pages 85-115, June.
  13. Fabio Fiorillo & Agnese Sacchi, 2012. "The Political Economy of the Standard Level of Services: The Role of Income Distribution," CESifo Working Paper Series 3696, CESifo Group Munich.

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  1. Log-normal distribution in Wikipedia English ne '')
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