Abstract
AbstractThere are empirical evidences regrading the Pareto tail of the income distribution and the expenditure distribution. We formulate a simple economic framework to study the relation between them. We explain the Pareto tails in both the distributions with a Cobb-Douglas felicity function to describe the preferences of agents. Moreover, the Indian data suggest a thicker Pareto tail for the expenditure distribution in comparison to the income distribution. With a uniform distribution of taste parameters for various goods, we identify a process that can give rise to this empirical phenomenon. We also verify our observation with appropriate simulation results.KeywordsUtility FunctionIncome DistributionMarginal UtilityPareto DistributionCumulative Density FunctionThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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