Journal
PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
Volume 319, Issue -, Pages 469-486Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/S0378-4371(02)01507-8
Keywords
Pareto law; income distribution; GBM; mixture model; double Pareto-lognormal distribution
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A stochastic model for the generation of observed income distributions is used to provide an explanation for the Pareto law of incomes. Analysis of the model also yields a prediction of Paretian (power law) behaviour in the lower tail of the distribution and this is shown to occur in a number of empirical distributions. A tractable four-parameter distribution is derived, and shown to fit extremely well to a number of different empirical income distributions. (C) 2002 Published by Elsevier Science B.V.
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