Empirical evidence of income dynamics across EU regions

This paper analyses the distribution of purchasing power standardized per capita income across EU-12 regions between 1977 and 1996. Dispersion of incomes between regions is measured taking into account their population sizes. The cross-sectional distributions are initially described by weighted kern...

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Bibliographic Details
Published in:Journal of applied econometrics (Chichester, England) England), 2006-07, Vol.21 (5), p.605-628
Main Authors: Pittau, Maria Grazia, Zelli, Roberto
Format: Article
Language:English
Subjects:
Cluster analysis
Cross-sectional analysis
Density estimation
Distribution
Economic models
Empirical evidence
Empirical tests
Europe
European Union
Gross domestic product
High income
Income distribution
Income estimates
Low income groups
Neoclassical economics
P values
Per capita income
Purchasing power
Regional economics
Standard deviation
Steady state economies
Studies
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Summary:This paper analyses the distribution of purchasing power standardized per capita income across EU-12 regions between 1977 and 1996. Dispersion of incomes between regions is measured taking into account their population sizes. The cross-sectional distributions are initially described by weighted kernel density estimates, revealing a multimodal structure of the distributions, less evident over the period. This evidence is supported by a bootstrap test. To detect homogeneous groups of regions, the empirical distributions are approximated by a finite mixture of normal densities. The components of the mixture represent clusters of poor/rich regions, while the mixing proportions the allocation over the poor and the rich components. The number of components is assessed by a bootstrap LR test, and the goodness of fit by a kernel density-based test. Income mobility is modelled by the stochastic kernel, the continuous counterpart of the transition probability matrix. The main implication is a very slow process of catching up of the poorest regions with the richer ones and a process of shifting away of a small group of very rich regions. This evidence is reflected in the shape of the ergodic distribution, which is well fitted by a two-component mixture model.
ISSN:0883-7252
1099-1255
DOI:10.1002/jae.855