Characterization and Significance of the Income Distribution

Summary

In this study, we aim to increase our knowledge about the possible ways to characterize the income distribution and to outline the signi˝cance of the chosen characterization on the conclusions we make. Another, a more ambitious, aim of the study is to outline the signi˝cance of the income distribution itself on other economic outcomes.

The methodology used in this study is partly empirical and partly theoretical. A further methodological goal is to be able to illustrate to as great a length as feasible the signi˝cance of the assumptions that we make and the possible other conclusions we could make from the data given a di˙erent set of assumptions.

We reach two main results in this study. The ˝rst one of these results is mainly descriptive and empirical. We ˝nd that the development that in the late nineties and early 2000’s increased dispersion in the income distribution, also changed some features of the distribution enough to induce qualitative changes, namely in the form of the heavy upper tail that we denominate ‘super Pareto tail’. We propose the use of the stable distribution family to characterize the income distribution and its qualitative properties at least approximatively.

Another result arises in the part where we examine the relationship between consumption, income transfers and income. By using a rather preliminary ap-proach, we conclude that this relationship is non-linear in a complicated way. This indicates that it requires rigorous tools to depict the income distribution in a su°cient manner to support our understanding of other economic phenomena as well.

• ISSN: 1236-7176
• ISBN: 978-952-209-068-3
• Press Release in Finnish
• Publication in PDF-format