Income inequality in Romania: The exponential-Pareto distribution

Abstract

Abstract We present a study of the distribution of the gross personal income and income inequality in Romania, using individual tax income data, and both non-parametric and parametric methods. Comparing with official results based on household budget surveys (the Family Budgets Survey and the EU-SILC data), we find that the latter underestimate the income share of the high income region, and the overall income inequality. A parametric study shows that the income distribution is well described by an exponential distribution in the low and middle incomes region, and by a Pareto distribution in the high income region with Pareto coefficient α = 2.53 . We note an anomaly in the distribution in the low incomes region ( ∼ 9,250 RON), and present a model which explains it in terms of partial income reporting.