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The Structure of the U.S. Income Distribution

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  • Conrad Kosowsky

Abstract

I show that U.S. incomes follow a one-parameter family of probability distributions over more than fifty years of data. I compare statistical models of income, and I highlight the inverse-gamma distribution as a parsimonious model that matches data particularly well and has straightforward theoretical interpretations. However, despite having relatively few parameters, the inverse-gamma distribution still overfits income data. I establish a linear relationship between parameter estimates, and a one-dimensional model emerges naturally when I exploit this relationship. I conclude with theoretical remarks about the model.

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  • Conrad Kosowsky, 2024. "The Structure of the U.S. Income Distribution," Papers 2411.08826, arXiv.org.
    • Handle: RePEc:arx:papers:2411.08826
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    References listed on IDEAS

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    1. Christopoulos, Dimitris & McAdam, Peter, 2017. "Do financial reforms help stabilize inequality?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 45-61.
    2. Charlotte Bartels & Maria Metzing, 2019. "An integrated approach for a top-corrected income distribution," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 17(2), pages 125-143, June.
    3. Ghossoub, Edgar A. & Reed, Robert R., 2017. "Financial development, income inequality, and the redistributive effects of monetary policy," Journal of Development Economics, Elsevier, vol. 126(C), pages 167-189.
    4. Monique Graf & Desislava Nedyalkova, 2014. "Modeling of Income and Indicators of Poverty and Social Exclusion Using the Generalized Beta Distribution of the Second Kind," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 821-842, December.
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