Stochastic Ordering of Stationary Distributions of Linear Recurrences: Further Results and Economic Applications

Christian Di Pietro, Mariafortuna Pietroluongo and Marco Sorge
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Christian Di Pietro: Dipartimento di Studi Aziendali ed Economici, University of Napoli Parthenope, 80133 Naples, Italy
Mariafortuna Pietroluongo: Dipartimento di Studi Aziendali ed Economici, University of Napoli Parthenope, 80133 Naples, Italy

Economies, 2023, vol. 11, issue 4, 1-10

Abstract: We investigate pairwise stochastic comparisons of stationary solutions to the linear recurrence X t + 1 = A t X t + B t , where A t and B t are non-negative random variables. We establish novel order-preserving properties, which enable us to obtain comparison theorems about well-known measures of conditional size, tail variability and skewness across probability distributions. While useful in studies of ergodic wealth accumulation processes and the persistence of inequality, our results can fruitfully be exploited to conduct comparative statics exercises in structural models entailing Kesten-type reduced-form representations. An application of our analysis to a dynamic asset accumulation model uncovers the qualitatively similar effects of capital income and earnings taxation on expected wealth concentration over higher quantiles as well as on conditional upper tail dispersion of wealth holdings, qualifying previous results that solely rely on the determination of Pareto exponents.

Keywords: stochastic orders; linear recurrences; wealth distribution; Kesten equations (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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