Do wealth distributions follow power laws? Evidence from "rich lists"

TL;DR

This study examines whether the upper tails of wealth distributions follow power laws by analyzing rich list data from various countries and time periods, finding limited evidence for power-law behavior.

Contribution

It applies a comprehensive empirical methodology to test the power-law hypothesis on wealth data, providing nuanced insights into its validity and alternatives.

Findings

Power-law fits only 35% of datasets

Wealth data often compatible with other distributions

Limited evidence supporting power-law behavior in wealth

Abstract

We use data on wealth of the richest persons taken from the "rich lists" provided by business magazines like Forbes to verify if upper tails of wealth distributions follow, as often claimed, a power-law behaviour. The data sets used cover the world's richest persons over 1996-2012, the richest Americans over 1988-2012, the richest Chinese over 2006-2012 and the richest Russians over 2004-2011. Using a recently introduced comprehensive empirical methodology for detecting power laws, which allows for testing goodness of fit as well as for comparing the power-law model with rival distributions, we find that a power-law model is consistent with data only in 35% of the analysed data sets. Moreover, even if wealth data are consistent with the power-law model, usually they are also consistent with some rivals like the log-normal or stretched exponential distributions.