Evidence of Chinese income dynamics and its effects on income scaling law

Abstract

With personal annual income data of 5 consecutive years (1998–2002) from CHIPS, dynamic characteristics of Chinese income are studied, especially two hypotheses of time reversal symmetry and independent growth rate are tested. In high income regions, an increasing trend of the standard deviation of income growth rate is observed, which means independent growth rate hypothesis fails to hold. This empirical finding is designed as a new mechanism and added into Gibrat’s model, which yields a distribution with a power-law tail. Our model’s simulation result shows that increasing variance of income growth rates for higher income regions is the key ingredient to get the power-law tail.