Is the Pareto-Lévy law a good representation of income distributions?

Arbeitspapier

Mandelbrot (1960) proposed using the so-called Pareto-Lévy class of distributions as a framework for representing income distributions. We argue in this paper that the Pareto-Lévy distribution is an interesting candidate for representing income distribution because its parameters are easy to interpret and it satisfies a specific invariance-under-aggregation property. We also demonstrate that the Gini coefficient can be expressed as a simple formula of the parameters of the Pareto-Lévy distribution. We subsequently use wage and income data for Norway and seven other OECD countries to fit the Pareto- Lévy distribution as well as the Generalized Beta type II (GB2) distribution. The results show that the Pareto-Lévy distribution fits the data better than the GB2 distribution for most countries, despite the fact that GB2 distribution has four parameters whereas the Pareto-Lévy distribution has only three.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: LIS Working Paper Series ; No. 568

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions ; Specific Distributions; Specific Statistics ; Model Evaluation, Validation, and Selection ; Personal Income, Wealth, and Their Distributions
• Subject: stable distributions ; Pareto-Lévy distribution ; income distributions ; invariance principles ; Generalized Beta distributions ; Einkommensverteilung ; Disparitätsmaß ; Beta-Verteilung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dagsvik, John K. ; Jia, Zhiyang ; Vatne, Bjørn H. ; Zhu, Weizhen
• Event: Veröffentlichung
• (who): Luxembourg Income Study (LIS)
• (where): Luxembourg
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/95606
• Last update: 10.03.2025, 11:45 AM CET