Journal of Statistical and Econometric Methods

Aspects of Pareto distributions

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• Abstract

  Different skew models, such as the lognormal and the Pareto functions, have been proposed as suitable descriptions of income distribution. Specific distributions are usually applied in empirical investigations. It is a common opinion that the Pareto curve often provides an adequate description of higher incomes. Recently, double Pareto distributions that obey the power law in both the upper and lower tails have been suggested to reflect a general distribution of personal income. In this study, the literature concerning double Pareto models is presented and the model is applied to Finnish income data.

  JEL classification numbers: I32.

  Keywords: Maximum likelihood estimate, Method of moments, Bayesian method, Mean Squared Error, Lognormal, double Pareto, Coefficient of determination, survival function, Geometric Brownian motion.