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Models for over reported income

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  • Saralees Nadarajah

Abstract

Over reported income is commonly expressed as Z = X/Y, where X denotes the true income and Y a multiplicative error taking values in (0, 1). If Y has the power function distribution then it is well known that X is Pareto distributed if and only if Z is also. Often, the gamma distribution is preferred as a model for income. In this note, we derive the exact distribution of Z as well as the associated percentage points assuming X is gamma distributed.

Suggested Citation

  • Saralees Nadarajah, 2009. "Models for over reported income," Applied Economics Letters, Taylor & Francis Journals, vol. 16(7), pages 699-703.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:7:p:699-703
    DOI: 10.1080/13504850701221790
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