Econometrica: Sep, 1976, Volume 44, Issue 5
A Function for Size Distribution of Incomes
G. S. Maddala, S. K. Singh
The paper derives a function that describes the size distribution of incomes. The two functions most often used are the Pareto and the lognormal. The Pareto function fits the data fairly well towards the higher levels but the fit is poor towards the lower income levels. The lognormal fits the lower income levels better but its fit towards the upper end is far from satisfactory. There have been other distributions suggested by Champernowne, Rutherford, and others, but even these do not result in any considerable improvement. The present paper derives a distribution that is a generalization of the Pareto distribution and the Weibull distribution used in analyses of equipment failures. The distribution fits actual data remarkably well compared with the Pareto and the lognormal.