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Income And Expenditure Distribution: A Comparative Analysis

Author

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  • Kausik Gangopadhyay

    (Indian Institute of Management Kozhikode)

  • Banasri Basu

    (Indian Statistical Institute, Kolkata)

Abstract

There are empirical evidences regrading the Pareto tail of the income distribution and the expenditure distribution. We formulate a simple economic framework to study the relation between them. We explain the Pareto tails in both the distributions with a Cobb-Douglas felicity function to describe the preferences of agents. Moreover, the Indian data suggest a thicker Pareto tail for the expenditure distribution in comparison to the income distribution. With a uniform distribution of taste parameters for various goods, we identify a process that can give rise to this empirical phenomenon. We also verify our observation with appropriate simulation results.

Suggested Citation

  • Kausik Gangopadhyay & Banasri Basu, 2010. "Income And Expenditure Distribution: A Comparative Analysis," Working papers 69, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:69
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