Evidence for Power-law tail of the Wealth Distribution in India

TL;DR

This study analyzes the wealth distribution in India, revealing a power-law tail with a Pareto exponent between 0.81 and 0.92, and compares it with income distribution and previous Western-based studies.

Contribution

It provides the first evidence of a power-law tail in Indian wealth distribution and estimates the Pareto exponents for wealth and income in India.

Findings

Wealth distribution tail follows a power-law with Pareto exponent 0.81-0.92.

Estimated Pareto exponent for income distribution is around 1.5.

Discussion on stochastic models and measurement errors in Pareto estimation.

Abstract

The higher-end tail of the wealth distribution in India is studied using recently published lists of the wealth of richest Indians between the years 2002-4. The resulting rank distribution seems to imply a power-law tail for the wealth distribution, with a Pareto exponent between 0.81 and 0.92 (depending on the year under analysis). This provides a comparison with previous studies of wealth distribution, which have all been confined to Western advanced capitalist economies. We conclude with a discussion on the appropriateness of multiplicative stochastic process as a model for asset accumulation, the relation between the wealth and income distributions (we estimate the Pareto exponent for the latter to be around 1.5 for India), as well as possible sources of error in measuring the Pareto exponent for wealth.