Scaling in Income Inequalities and its Dynamical Origin

TL;DR

This paper introduces an analytically solvable model for income distribution across all income levels, validated with real data, revealing universal patterns and the influence of socio-economic factors on distribution parameters.

Contribution

The paper presents a unified, analytically treatable model for income distribution that accounts for all income categories and links model parameters to socio-economic regulations.

Findings

Income distributions collapse onto a master-curve when normalized.

The Beta Prime distribution fits the collapsed income data well.

Distribution parameters vary across countries, reflecting socio-economic differences.

Abstract

We provide an analytically treatable model that describes in a unified manner income distribution for all income categories. The approach is based on a master equation with growth and reset terms. The model assumptions on the growth and reset rates are tested on an exhaustive database with incomes on individual level spanning a nine year period in the Cluj county (Romania). In agreement with our theoretical predictions we find that income distributions computed for several years collapse on a master-curve when a properly normalised income is considered. The Beta Prime distribution is appropriate to fit the collapsed data and it is shown that distributions derived for other countries are following similar trends with different fit parameters. The non-universal feature of the fit parameters suggests that for a more realistic modelling the model parameters have to be linked with specific socio-economic regulations.