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Evaluating Dominance Ranking of PSID Incomes by Various Household Attributes

  • Maasoumi, Esfandiar


    (Emory University)

  • Heshmati, Almas


    (Jönköping University, Sogang University)

We examine the dynamic evolution of incomes, both disposable and gross, for several groups in the PSID panel data at several points from 1968 to 1997. We employ the extended Kolmogorov-Smirnov tests of First and Second Order Stochastic Dominance (SD) as implemented by Maasoumi and Heshmati (2000). They do not impose the Least Favorable Case (LFC) of the composite null hypotheses of SD orders. This is in contrast to simulation and bootstrap-based techniques that do so, resulting in tests that are not asymptotically similar or unbiased. Our approach is also different from the subsampling technique of Linton et al (2005) who obtain critical values for these tests under very general sampling schemes. We offer partial control for many individual/family specific attributes, such as age, gender, education, number of children, work and marital status, by comparing group cells. This avoids having to specify and estimate models of dependence of incomes on these attributes, but lacks the multiple controls that is the promise of such techniques. We find a surprising number of strong rankings, both between groups and over time, in gross income and, to a lesser extent, in 'disposable' incomes.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1727.

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Length: 62 pages
Date of creation: Aug 2005
Date of revision:
Publication status: published in: Betti and Lemmi (eds.), Advances in Income Inequality and Concentration Measures, Routledge: London, 2008
Handle: RePEc:iza:izadps:dp1727
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  1. Peter Reinhard Hansen, 2001. "An Unbiased and Powerful Test for Superior Predictive Ability," Working Papers 2001-06, Brown University, Department of Economics.
  2. Maasoumi, Esfandiar & Zandvakili, Sourushe, 1990. "Generalized entropy measures of mobility for different sexes and income levels," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 121-133.
  3. Ian Crawford, 1999. "Nonparametric tests of stochastic dominance in bivariate distributions, with an application to UK data," IFS Working Papers W99/28, Institute for Fiscal Studies.
  4. Oliver Linton & Esfandiar Maasoumi & Yoon-Jae Whang, 2003. "Consistent testing for stochastic dominance under general sampling schemes," LSE Research Online Documents on Economics 2208, London School of Economics and Political Science, LSE Library.
  5. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
  6. Valentino Dardanoni & Antonio Forcina, 1999. "Inference for Lorenz curve orderings," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 49-75.
  7. Anthony F. Shorrocks & James E. Foster, 1987. "Transfer Sensitive Inequality Measures," Review of Economic Studies, Oxford University Press, vol. 54(3), pages 485-497.
  8. Davidson, R. & Duclos, J.-Y., 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," G.R.E.Q.A.M. 98a14, Universite Aix-Marseille III.
  9. Kaur, Amarjot & Prakasa Rao, B.L.S. & Singh, Harshinder, 1994. "Testing for Second-Order Stochastic Dominance of Two Distributions," Econometric Theory, Cambridge University Press, vol. 10(05), pages 849-866, December.
  10. Abadie A., 2002. "Bootstrap Tests for Distributional Treatment Effects in Instrumental Variable Models," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 284-292, March.
  11. Michael Sattinger (ed.), 2001. "Income Distribution," Books, Edward Elgar Publishing, volume 0, number 2018, 10.
  12. Esfandiar Maasoumi & Almas Heshmati, 2000. "Stochastic dominance amongst swedish income distributions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 287-320.
  13. Daniel L. Millimet & Esfandiar Maasoumi, 2005. "Robust inference concerning recent trends in US environmental quality," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 55-77.
  14. Fisher, Gordon & Willson, Douglas & Xu, Kuan, 1998. "An empirical analysis of term premiums using significance tests for stochastic dominance," Economics Letters, Elsevier, vol. 60(2), pages 195-203, August.
  15. repec:cup:etheor:v:10:y:1994:i:5:p:849-66 is not listed on IDEAS
  16. Garry F. Barrett & Stephen G. Donald, 2003. "Consistent Tests for Stochastic Dominance," Econometrica, Econometric Society, vol. 71(1), pages 71-104, January.
  17. Y.K. Tse & Xibin Zhang, 2003. "A Monte Carlo Investigation of Some Tests for Stochastic Dominance," Monash Econometrics and Business Statistics Working Papers 7/03, Monash University, Department of Econometrics and Business Statistics.
  18. Anderson, Gordon, 1996. "Nonparametric Tests of Stochastic Dominance in Income Distributions," Econometrica, Econometric Society, vol. 64(5), pages 1183-93, September.
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