Information theoretic approaches to income density estimation with an application to the US income data
- Authors
- Park, Sung-yong; Bera, Anil Kumar
- Issue Date
- Dec-2018
- Publisher
- SPRINGER
- Keywords
- Income density estimation; Information theoretic approach; Maximum entropy; Weak Pareto law
- Citation
- JOURNAL OF ECONOMIC INEQUALITY, v.16, no.4, pp 461 - 486
- Pages
- 26
- Journal Title
- JOURNAL OF ECONOMIC INEQUALITY
- Volume
- 16
- Number
- 4
- Start Page
- 461
- End Page
- 486
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/1818
- DOI
- 10.1007/s10888-018-9377-y
- ISSN
- 1569-1721
1573-8701
- Abstract
- The size distribution of income is the basis of income inequality measures which in turn are needed for evaluation of social welfare. Therefore, proper specification of the income density function is of special importance. In this paper, using information theoretic approach, first, we provide a maximum entropy (ME) characterization of some well-known income distributions. Then, we suggest a class of flexible parametric densities which satisfy certain economic constraints and stylized facts of personal income data such as the weak Pareto law and a decline of the income-share elasticities. Our empirical results using the U.S. family income data show that the ME principle provides economically meaningful and a very parsimonious and, at the same time, flexible specification of the income density function.
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