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Maximum entropy estimation of income distributions from Basmann’s weighted geometric mean measure

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  • Ryu, Hang K.
  • Slottje, Daniel J.

Abstract

This paper introduces a new Maximum Entropy based inequality measure that is related to Basmann’s class of weighted geometric mean (WGM) measures, but with the added feature that the new measure is flexible enough to describe other characteristics of an observed income distribution function (IDF), a feature that other well-known measures do not possess. As an application, using Current Population Survey (CPS) data, we apply the new measure to Blinder and Esaki’s (1978) aggregate macro-modeling approach to examine US income inequality trends from 1947 to 2014. Increases in the unemployment rate and decreases in inflation rates and in the growth rate in gross domestic product (GDP) were found to deepen income inequality; rising inequality is a recent trend many policymakers have been watching with concern.

Suggested Citation

  • Ryu, Hang K. & Slottje, Daniel J., 2017. "Maximum entropy estimation of income distributions from Basmann’s weighted geometric mean measure," Journal of Econometrics, Elsevier, vol. 199(2), pages 221-231.
    • Handle: RePEc:eee:econom:v:199:y:2017:i:2:p:221-231
    DOI: 10.1016/j.jeconom.2017.05.012
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    References listed on IDEAS

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    Cited by:

    1. Michael McAleer & Hang K. Ryu & Daniel J. Slottje, 2019. "A New Inequality Measure that is Sensitive to Extreme Values and Asymmetries," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(1), pages 31-61, March.
    2. Süssmuth, Bernd & Wieschemeyer, Matthias, 2022. "Taxation and the distributional impact of inflation: The U.S. post-war experience," Economic Modelling, Elsevier, vol. 111(C).

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    More about this item

    Keywords

    Decomposition of Basmann’s WGM measure; Gini coefficient; Theil’s entropy measure; Maximum entropy method;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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