The Pareto distribution as a disguised Gauss distribution

TL;DR

This paper presents a heuristic model explaining social inequality in market economies, showing that income distribution resembles a deformed Gaussian that aligns with Pareto at high incomes, driven by non-equivalent exchanges.

Contribution

It introduces a simple model linking income distribution to a deformed Gaussian, revealing the Pareto tail as a consequence of non-equivalent exchanges among agents.

Findings

Income distribution resembles a deformed Gaussian.

High incomes follow Pareto distribution.

Non-equivalent exchanges sustain inequality.

Abstract

A simple heuristic model, including the multiple exchanges between economic agents, is used to explain the mechanism of emerging and maintenance of social inequality in the market economy. The model allows calculating a density function of the population distribution over income. The function can be considered as a strongly deformed Gauss distribution function, whereas, at large incomes, it coincides with the Pareto distribution. The external, in relation to the model under consideration, force is necessary to maintain the strong non-equilibrium in a stationary state, and this force is the non-equivalence of elementary exchanges: the agent who already receives the higher income has the advantage: it provokes the rich to be getting more rich and the poor to be getting pauper.