INCOME AND EXPENDITURE DISTRIBUTION: A COMPARATIVE ANALYSIS

Kausik Gangopadhyay and Banasri Basu ()
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Banasri Basu: Indian Statistical Institute, Kolkata

No 69, Working papers from Indian Institute of Management Kozhikode

Abstract: There are empirical evidences regrading the Pareto tail of the income distribution and the expenditure distribution. We formulate a simple economic framework to study the relation between them. We explain the Pareto tails in both the distributions with a Cobb-Douglas felicity function to describe the preferences of agents. Moreover, the Indian data suggest a thicker Pareto tail for the expenditure distribution in comparison to the income distribution. With a uniform distribution of taste parameters for various goods, we identify a process that can give rise to this empirical phenomenon. We also verify our observation with appropriate simulation results.

Pages: 1 page
Date: 2010
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