Exponential structure of income inequality: evidence from 67 countries

Yong Tao (), Xiangjun Wu, Tao Zhou, Weibo Yan, Yanyuxiang Huang, Han Yu, Benedict Mondal and Victor Yakovenko
Additional contact information
Yong Tao: Southwest University
Xiangjun Wu: Hangzhou Dianzi University
Tao Zhou: University of Electronic Science and Technology of China
Weibo Yan: Xi’an Jiaotong University
Yanyuxiang Huang: Southwest University
Han Yu: Southwest University
Benedict Mondal: University of Maryland

Journal of Economic Interaction and Coordination, 2019, vol. 14, issue 2, No 6, 345-376

Abstract: Abstract Economic competition between humans leads to income inequality, but, so far, there has been little understanding of underlying quantitative mechanisms governing such a collective behavior. We analyze datasets of household income from 67 countries, ranging from Europe to Latin America, North America and Asia. For all of the countries, we find a surprisingly uniform rule: income distribution for the great majority of populations (low and middle income classes) follows an exponential law. To explain this empirical observation, we propose a theoretical model within the standard framework of modern economics and show that free competition and Rawls’ fairness are the underlying mechanisms producing the exponential pattern. The free parameters of the exponential distribution in our model have an explicit economic interpretation and direct relevance to policy measures intended to alleviate income inequality.

Keywords: Income inequality; General equilibrium; Rawls’ fairness; Technological progress; Entropy (search for similar items in EconPapers)
JEL-codes: D31 D51 D63 E14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (17)

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Working Paper: Exponential Structure of Income Inequality: Evidence from 67 Countries (2017)
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DOI: 10.1007/s11403-017-0211-6

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