Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the United States-Reference-Cited by-同舟云学术

Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the United States

Published:2017-07-01 Issue:3 Volume:9 Page:36-71
ISSN:1945-7707
Container-title:American Economic Journal: Macroeconomics
language:en
Short-container-title:American Economic Journal: Macroeconomics

Author:

Aoki Shuhei¹,Nirei Makoto²

Affiliation:

1. Department of Economics, Shinshu University, 3-1-1 Asahi, Matsumoto, Nagano, Japan (email: )

2. Department of Economics, University of Tokyo, 7-3-1 Hongo, Bunkyo-ku, Tokyo, Japan (email: )

Abstract

We construct a tractable neoclassical growth model that generates Pareto's law of income distribution and Zipf's law of the firm size distribution from idiosyncratic, firm-level productivity shocks. Executives and entrepreneurs invest in risk-free assets, as well as their own firms' risky stocks, through which their wealth and income depend on firm-level shocks. By using the model, we evaluate how changes in tax rates can account for the evolution of top incomes in the United States. The model matches the decline in the Pareto exponent of the income distribution and the trend of the top 1 percent income share in recent decades. (JEL D31, H24, L11)

Publisher

American Economic Association

Subject

General Economics, Econometrics and Finance

Link

https://pubs.aeaweb.org/doi/pdf/10.1257/mac.20150051

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