A Convenient Descriptive Model of Income Distribution: The Gamma Density

The distribution of personal income is approximated by a two-parameter gamma density function (Pearson Type III). The two parameters may be considered as indicators of scale and of inequality, respectively. Maximum likelihood estimates of the parameters are derived from a random sample using graphic...

Full description

Saved in:
Bibliographic Details
Published in:Econometrica 1974-11, Vol.42 (6), p.1115-1127
Main Authors: Salem, A. B. Z., Mount, T. D.
Format: Article
Language:English
Subjects:
Arithmetic mean
Economic indicators
Economic models
Estimates
Estimation methods
Family income
Geometric mean
Hypotheses
Income distribution
Income estimates
Income inequality
Inequality
Maximum likelihood estimators
Personal income
Skewed distribution
Skewness
Standard deviation
Statistics
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The distribution of personal income is approximated by a two-parameter gamma density function (Pearson Type III). The two parameters may be considered as indicators of scale and of inequality, respectively. Maximum likelihood estimates of the parameters are derived from a random sample using graphical techniques, and a likelihood ratio test for the hypothesis that the inequality parameter is the same for different distributions is presented. The derivation of both the estimates and the test statistic requires computing the arithmetic and geometric means from the sample. An empirical application, including a comparison of the gamma and lognormal distributions to demonstrate the better fit of the gamma, is made to personal income data in the United States for the years 1960 to 1969. Using the gamma density, inequality is shown to decrease when unemployment or inflation decreases, or when the real national product increases.
ISSN:0012-9682
1468-0262
DOI:10.2307/1914221