Consumer Expenditure Distribution in India, 1983-2007: Evidence of a Long Pareto Tail

TL;DR

This empirical study analyzes Indian consumer expenditure from 1982 to 2007, revealing a mixed distribution with a lognormal lower tail and a Pareto upper tail, highlighting inequality patterns and their evolution.

Contribution

It provides the first detailed analysis of the expenditure distribution in India, identifying a long Pareto tail and its growth over time, with robust goodness-of-fit validation.

Findings

Pareto tail comprises 30-40% of the population in upper expenditure levels

The expenditure distribution is a mixture of lognormal and Pareto distributions

The Pareto tail has widened over time in rural India

Abstract

This work presents an empirical study of the evolution of the consumer expenditure distribution in India during 1982-2007. We have used the National Sample Survey Organization data and analysed the expenditure distribution for the urban and rural sectors. It is found that this distribution is a mixture of two distributions, more particularly, it follows a lognormal in the lower tail and a Pareto distribution in the higher end. The Pareto tail consists of a remarkable 30-40% of the population in the upper end and the lower end is suitably modeled by the lognormal one. The goodness-of-fit tests endorse the proposed distribution. Moreover, the Pareto tail is widening over time for the rural sector. The Gini coefficient, a prominent measure for inequality, for the expenditure distribution is found to be stable for the entire time span.