AN INTERNATIONAL COMPARISON OF INCOME DISTRIBUTION

We investigate two empirical questions in the income distribution literature: the validity of the weak Pareto law, which states that income is distributed in the right tail according to the Pareto distribution and the stability of income distribution in the post-war period.;The Amoroso is fitted by maximum likelihood to grouped income distribution data from eight industrial countries using a version of the E-M algorithm. The Amoroso provides acceptable fits for only some income distributions. It sometimes produces poorer fits than the two-parameter lognormal, especially when multiple modes are suspected.;We find that estimated aggregate distributions are weakly Pareto. Reported Eastern European distributions are found to be not weakly Pareto; however, similarly-defined Western wage and salary distributions can also fail to be weakly Pareto. We consider the possibility that bimodality in the income distribution arises from differences in income distribution within population subgroups and estimate simple mixture models.;We find that income distribution has been fairly stable in the post-war period, but it does show some variation over the business cycle and some trend. The long-run trend in most aggregate distributions has been social welfare-increasing from 1950 to 1970; since then, the trend has become welfare-decreasing in most countries.;We give the Amoroso's parameters a welfare-theoretic interpretation by examining the derivatives of an additively separable social welfare function. A one-to-one transformation exists such that the social welfare function can be expressed as a function of mean income and the Gini coefficient. We show that a conventional interpretation of mean income and the Gini coefficient is appropriate when the income distribution is Amoroso.