The exponential Pareto model with hidden income processes: Evidence from Chile

Building on the two-class income model (Banerjee and Yakovenko, 2010), this paper proposes a new methodology to estimate the income distribution that accounts for hidden sources of income, such as retained earnings. We promote and illustrate this methodology with a case study of the Chilean economy....

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Bibliographic Details
Published in:Physica A 2021-01, Vol.561, p.125196, Article 125196
Main Authors: Díaz, Juan D., Gutiérrez Cubillos, Pablo, Tapia Griñen, Pablo
Format: Article
Language:English
Subjects:
Hidden income processes
Pareto distribution
Retained earnings
Two-class income model
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Summary:Building on the two-class income model (Banerjee and Yakovenko, 2010), this paper proposes a new methodology to estimate the income distribution that accounts for hidden sources of income, such as retained earnings. We promote and illustrate this methodology with a case study of the Chilean economy. Our results reveal that after including the hidden sources of income, economic inequality in Chile has remained relatively constant over the last 15 years. •We conceptualize the idea of hidden incomes using Yakovenko et al.’s model.•We propose a new method to estimate income distributions that accounts for hidden incomes, such as retained earnings.•We illustrate this methodology with a case study of the Chilean economy.•Income inequality in Chile has remained relatively constant over the last 15 years.
ISSN:0378-4371
1873-2119
DOI:10.1016/j.physa.2020.125196