Wealth distribution models: analisys and applications

Abstract

After Pareto developed his Type I model in 1895, a large number of income distribution models have been specified. However, the important issue of wealth distribution called the attention of researchers more than sixty years later. It started with the contributions by Wold and Whittle, and Sargan, both published in 1957. The former authors proposed the Pareto Type I model and the latter the lognormal distribution, but they did not empirically validate them. Afterward, other models were proposed: in 1969 the Pareto Types I and II by Stiglitz; in 1975, the loglogistic by Atkinson and the Pearson Type V by Vaughan. In 1990 and 1994, Dagum developed a general model and his type II as models of wealth distribution. They were validated with real life data from the U.S.A., Canada, Italy and the U.K. In 1999, Dagum further developed his general model of net wealth distribution with support (??,?) which contains, as particular cases, his Types I and II model of income and wealth distributions. This study presents and analyzes the proposed models of wealth distribution and their properties. The only model with the flexibility, power, and economic and stochastic foundations to accurately fit net and total wealth distributions is the Dagum general model and its particular cases as validated with the case studies of Ireland, U.K., Italy and U.S.A.