Averaging Income Distributions

Duangkamon Chotikapanich, William Griffiths () and D.S. Prasada Rao ()

No 798, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Various inequality and social welfare measures often depend heavily on the choice of a distribution of income. Picking a distribution that best fits the data in some sense involves throwing away information and does not allow for the fact that, by chance, a wrong choice can be made. It also does not allow for the statistical inference implications of making the wrong choice. Instead, Bayesian model averaging utilises a weighted average of the results from a number of income distributions, with each weight given by the probability that a distribution is 'correct'. In this study prior densities are placed on mean income, the mode of income and the Gini coefficient for Australian income units with one parent (1997-98). Then, using grouped sample data on incomes, posterior densities for the mean and mode of income, and the Gini coefficient are derived for a variety of income distributions. The model-averaged results from these income distributions are obtained.

Keywords: Bayesian model averaging; Gini coefficient; grouped data (search for similar items in EconPapers)
JEL-codes: C11 D31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2001
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Related works:
Journal Article: Averaging Income Distributions (2005)
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