A Note on the Size Distribution of Consumption: More Double Pareto than Lognormal

12 Pages Posted: 21 Dec 2014 Last revised: 13 Dec 2017

See all articles by Alexis Akira Toda

Alexis Akira Toda

University of California, San Diego (UCSD) - Department of Economics

Date Written: April 7, 2015

Abstract

The cross-sectional distribution of consumption is commonly approximated by the lognormal distribution. This note shows that consumption is better described by the \emph{double Pareto-lognormal distribution} (dPlN), which has a lognormal body with two Pareto tails and arises as the stationary distribution in recently proposed dynamic general equilibrium models. dPlN outperforms other parametric distributions and is often not rejected by goodness-of-fit tests. The analytical tractability and parsimony of dPlN may be convenient for various economic applications.

Keywords: Gibrat's law, multiplicative idiosyncratic risk, inequality, power law

JEL Classification: D31, E21, G12

Suggested Citation

Toda, Alexis Akira, A Note on the Size Distribution of Consumption: More Double Pareto than Lognormal (April 7, 2015). Macroeconomic Dynamics, Vol 21, Issue 6, pp. 1508-1518, 2017, Available at SSRN: https://ssrn.com/abstract=2540741 or http://dx.doi.org/10.2139/ssrn.2540741

Alexis Akira Toda (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
Mail Code 0508
La Jolla, CA 92093-0508
United States

HOME PAGE: http://https://sites.google.com/site/aatoda111/

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