New Tests for Richness and Poorness: A Stochastic Dominance Analysis of Income Distributions in Hong Kong

Nikolai Sheung-Chi Chow (), Maria Rebecca Valenzuela () and Wing-Keung Wong
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Nikolai Sheung-Chi Chow: Research School of Economics, Australian National University, Kingsley Pl, Acton ACT 2601, Australia
Maria Rebecca Valenzuela: Centre for Efficiency & Productivity Analysis, School of Economics, University of Queensland, St Lucia QLD 4072, Australia
Wing-Keung Wong: Department of Finance, Fintech & Blockchain Research Center, and Big Data Research Center, Asia University, Taiwan, ROC4Department of Medical Research, China Medical University Hospital, Taiwan, ROC5Department of Economics and Finance, The Hang Seng University of Hong Kong, Hong Kong

Asia-Pacific Journal of Operational Research (APJOR), 2022, vol. 39, issue 04, 1-26

Abstract: This paper applies stochastic dominance techniques for income distribution analysis and develops tests of richness and poorness to achieve more accurate characterizations of relative welfare in populations than was previously possible. Results from our empirical application, using Hong Kong data, are consistent with predictions of the life-cycle theory of income and savings. Among other things, we find high concentrations of poor individuals among the younger cohorts, and at the same time, there are high concentrations of rich individuals amongst the oldest cohorts. Our results help to explain Hong Kong’s persistently high levels of income inequality in the population.

Keywords: Stochastic dominance; tests for richness; income distributions; relative welfare; Hong Kong (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0217595920400254

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