Stability of an exponential distribution for New Zealand taxable personal income

R. John Irwin and Timothy Irwin ()

New Zealand Economic Papers, 2017, vol. 51, issue 1, 49-59

Abstract: This paper examines the distribution of taxable personal income in New Zealand during 2000–2012 and finds that it is approximately exponential. Although the exponential Lorenz curve is parameter free (and implies a Gini coefficient of exactly 0.5), it, nevertheless, describes the distribution over the period surprisingly well, despite changes in the economy, tax rates, and the definition of taxable income; observed Gini coefficients are all in the interval (0.493, 0.528). Although the exponential could in principle be explained by a simple process, such as additive shocks to wages, no such account appears plausible or consistent with the diversity of the sources of taxable personal income. The exponential distribution is, however, the most likely distribution to arise (i.e. has maximum entropy) subject only to the constraints that incomes are positive and have a given mean.

Date: 2017
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DOI: 10.1080/00779954.2015.1130739

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