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

Author

Listed:
  • 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.

Suggested Citation

  • Fabio Clementi & Mauro Gallegati, 2005. "Pareto's Law of Income Distribution: Evidence for Grermany, the United Kingdom, and the United States," Microeconomics 0505006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpmi:0505006
    Note: Type of Document - ps; pages: 16
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    References listed on IDEAS

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    More about this item

    Keywords

    Personal income; Lognormal distribution; Pareto's law; Income growth rate;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D2 - Microeconomics - - Production and Organizations
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Logarithmische Normalverteilung in Wikipedia German
    2. Log-normális eloszlás in Wikipedia Hungarian
    3. Log-normaalijakauma in Wikipedia Finnish
    4. Log-normal distribution in Wikipedia English

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