10/17/15

How universal is the law of income distribution? Cross country comparison (post #777)

This paper could be absolutely amazing  for physicists. It shows that income distribution in four (English Speaking) countries follows a universal law. Incomes are driven by only one(!) external variable - real GDP per capita. All differences in income distribution are defined by the gap in GDP: Canada, New Zealand and the UK exactly follow steps of the USA with a time delay of 15 to 25 years! This is definitely a fundamental result for physics of income evolution as described by our model in the previous post.  

Luckily, this is post #777 in this blog. 

How universal is the law of income distribution? Cross country comparison

Ivan O. Kitov  and Oleg I. Kitov (link to full text on arxiv.org via IDEAS)

The evolution of personal income distribution (PID) in four countries: Canada, New Zealand, the UK, and the USA follows a unique trajectory. We have revealed precise match in the shape of two age-dependent features of the PID: mean income and the portion of people with the highest incomes (2 to 5% of the working age population). Because of the U.S. economic superiority, as expressed by real GDP per head, the curves of mean income and the portion of rich people currently observed in three chasing countries one-to-one reproduce the curves measured in the USA 15 to 25 years before. This result of cross country comparison implies that the driving force behind the PID evolution is the same in four studied countries. Our parsimonious microeconomic model, which links the change in PID only with one exogenous parameter - real GDP per capita, accurately predicts all studied features for the U.S. This study proves that our quantitative model, based on one first-order differential equation, is universal. For example, new observations in Canada, New Zealand, and the UK confirm our previous finding that the age of maximum mean income is defined by the root-square dependence on real GDP per capita.

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