An Econophysical dynamical approach of expenditure and income distribution in the UK

TL;DR

This paper applies statistical physics models to analyze expenditure and income distribution in the UK over 35 years, demonstrating that macroeconomic systems can be modeled as dynamical systems similar to those in physics.

Contribution

It introduces a novel dynamical approach using polynomial distribution fitting to macroeconomic data, extending physics-inspired models to expenditure and income analysis.

Findings

High goodness of fit (above 80%) for polynomial models across years

Methodology applicable to income and wealth data

Potential for extending analysis to other macroeconomic indicators

Abstract

We extend the exploration regarding dynamical approach of macroeconomic variables by tackling systematically expenditure using Statistical Physics models (for the first time to the best of our knowledge). Also, using polynomial distribution which characterizes the behavior of dynamical systems in certain situations, we extend also our analysis to mean income data from the UK that span for a time interval of 35 years. We find that most of the values for coefficient of determination obtained from fitting the data from consecutive years analysis to be above 80%. We used for our analysis first degree polynomial, but higher degree polynomials and longer time intervals between the years considered can dramatically increase goodness of the fit. As this methodology was applied successfully to income and wealth, we can conclude that macroeconomic systems can be treated similarly to dynamic systems from Physics. Subsequently, the analysis could be extended to other macroeconomic indicators.