Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the U.S

Makoto Nirei and Shuhei Aoki

No 926, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of firm size distribution from idiosyncratic, firm-level productivity shocks. CEOs invest in risk-free assets as well as their own firms' risky stocks, through which their assets and incomes depend on firm-level shocks. Using the model, we evaluate how changes in tax rates can account for the recent evolution of top incomes in the U.S. The model matches the decline in the Pareto exponent of income distribution and the trend of the top 1% income share in the U.S. in recent decades.

Date: 2015
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (7)

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Working Paper: Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the U.S (2016)
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