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A flexible descriptive model for the size distribution of incomes

Author

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  • Masato Okamoto

    (Statistical Research and Training Institute, Ministry of Internal Affairs and Communications)

Abstract

There are four-parameter income distribution models that have good reputation for goodness-of-fit. In contrast, the existing models with five or more parameters fail to achieve a satisfactory level of goodness-of-fit. We propose a new seven-parameter model that is empirically shown to be substantially better fitted than the existing models by imposing an appropriate restriction on the parameter domain prior to the maximum likelihood estimation.

Suggested Citation

  • Masato Okamoto, 2014. "A flexible descriptive model for the size distribution of incomes," Economics Bulletin, AccessEcon, vol. 34(3), pages 1600-1610.
    • Handle: RePEc:ebl:ecbull:eb-14-00364
    as

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    References listed on IDEAS

    as
    1. Masato Okamoto, 2013. "Erratum to “Evaluation of the goodness of fit of new statistical size distributions with consideration of accurate income inequality estimation”," Economics Bulletin, AccessEcon, vol. 33(3), pages 2443-2444.
    2. McDonald, James B. & Xu, Yexiao J., 1995. "A generalization of the beta distribution with applications," Journal of Econometrics, Elsevier, vol. 69(2), pages 427-428, October.
    3. Masato Okamoto, 2013. "Extension of the κ-generalized distribution: new four-parameter models for the size distribution of income and consumption," LIS Working papers 600, LIS Cross-National Data Center in Luxembourg.
    4. James B. McDonald, 2008. "Some Generalized Functions for the Size Distribution of Income," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Duangkamon Chotikapanich (ed.), Modeling Income Distributions and Lorenz Curves, chapter 3, pages 37-55, Springer.
    5. F. Clementi & M. Gallegati & G. Kaniadakis, 2007. "κ-generalized statistics in personal income distribution," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 57(2), pages 187-193, May.
    6. William J. Reed & Fan Wu, 2008. "New Four- and Five-Parameter Models for Income Distributions," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Duangkamon Chotikapanich (ed.), Modeling Income Distributions and Lorenz Curves, chapter 11, pages 211-223, Springer.
    7. Reed, William J., 2003. "The Pareto law of incomes—an explanation and an extension," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 319(C), pages 469-486.
    8. Masato Okamoto, 2012. "Evaluation of the goodness of fit of new statistical size distributions with consideration of accurate income inequality estimation," Economics Bulletin, AccessEcon, vol. 32(4), pages 2969-2982.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    income distribution; Lorenz curve; mixture distribution; model selection;
    All these keywords.

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • D6 - Microeconomics - - Welfare Economics

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