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AGE-INCOME DYNAMICS OVER THE LIFE COURSE: COHORT TRANSITION PATTERNS IN RELATIVE INCOME BASED ON CANADIAN TAX RETURNS

Frank T Denton, Byron G Spencer and Terry Yip

Department of Economics Working Papers from McMaster University

Abstract: This paper is concerned with patterns of cohort aging and income progression. We take a new approach to the characterization of relative income, explore the dynamics of age/income progression through the use of state transition matrices, consider alternative cohort definitions, and introduce an artificial cross-section cohort based on the transition matrices. Our applications make use of individual income records from the Statistics Canada Longitudinal Administrative Database. Relative income is defined by how an individual of a given age is positioned in the overall distribution of income in a given year. We derive the proportionate distribution of individuals in each decile group at each representative age, starting at 24, and the transition matrices then show the movements from the distribution at one age to the distribution five years later.

Keywords: age-income dynamics; cohort; relative income; state transition matrices (search for similar items in EconPapers)
JEL-codes: C63 C81 D31 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-01
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