Models for over reported income

Saralees Nadarajah

Applied Economics Letters, 2009, vol. 16, issue 7, 699-703

Abstract: Over reported income is commonly expressed as Z = X/Y, where X denotes the true income and Y a multiplicative error taking values in (0, 1). If Y has the power function distribution then it is well known that X is Pareto distributed if and only if Z is also. Often, the gamma distribution is preferred as a model for income. In this note, we derive the exact distribution of Z as well as the associated percentage points assuming X is gamma distributed.

Date: 2009
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DOI: 10.1080/13504850701221790

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