Growth and Fluctuations of Personal Income
Pareto's law states that the distribution of personal income obeys a power-law in the high-income range, and has been supported by international observations. Researchers have proposed models over a century since its discovery. However, the dynamical nature of personal income has been little studied hitherto, mostly due to the lack of empirical work. Here we report the first such study, an examination of the fluctuations in personal income of about 80,000 high-income taxpayers in Japan for two consecutive years, 1997 and 1998, when the economy was relatively stable. We find that the distribution of the growth rate in one year is independent of income in the previous year. This fact, combined with an approximate time-reversal symmetry, leads to the Pareto law, thereby explaining it as a consequence of a stable economy. We also derive a scaling relation between positive and negative growth rates, and show good agreement with the data. These findings provide the direct observation of the dynamical process of personal income flow not yet studied as much as for companies.
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.:
- Jean-Philippe Bouchaud & Marc Mezard, 2000. "Wealth condensation in a simple model of economy," Science & Finance (CFM) working paper archive 500026, Science & Finance, Capital Fund Management.
- Adrian Dragulescu & Victor M. Yakovenko, 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Papers cond-mat/0103544, arXiv.org, revised Mar 2001.
- Bouchaud, Jean-Philippe & Mézard, Marc, 2000. "Wealth condensation in a simple model of economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 282(3), pages 536-545.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:cond-mat/0208398. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.