Pareto's Law of Income Distribution: Evidence for Germany, the United Kingdom, and the United States

Details Pareto's Law of Income Distribution: Evidence for Germany, the United Kingdom, and the United States Pareto's Law of Income Distribution: Evidence for Germany, the United Kingdom, and the United States

2005-04-29

arxiv.org/abs/physics/0504217v3

Chatterjee, A., Yarlagadda, S., and Chakrabarti B. K. (2005). Econophysics of Wealth Distributions. Milan: Springer-Verlag Ita

Physics

Physics and Society

Latex2e v1.6; 16 pages with 5 figures

Scientific paper

We analyze three sets of income data: the US Panel Study of Income Dynamics PSID), the British Household Panel Survey (BHPS), and the German Socio-Economic Panel (GSOEP). It is shown that the empirical income distribution is consistent with a two-parameter lognormal function for the low-middle income group (97%-99% of the population), and with a Pareto or power law function for the high income group (1%-3% of the population). This mixture of two qualitatively different analytical distributions seems stable over the years covered by our data sets, although their parameters significantly change in time. It is also found that the probability density of income growth rates almost has the form of an exponential function.

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