Modeling the incomes of the upper-class group in Malaysia using new pareto-type distribution
The new Pareto-type distribution has been previously introduced as an alternative to the conventional Pareto distribution in modeling income distribution. It is claimed to provide better flexibility for mathematical simplicity of probability functions and has a more straightforward mathematical...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2022
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| Online Access: | http://journalarticle.ukm.my/20884/ http://journalarticle.ukm.my/20884/1/26.pdf |
| Summary: | The new Pareto-type distribution has been previously introduced as an alternative to the conventional Pareto
distribution in modeling income distribution. It is claimed to provide better flexibility for mathematical simplicity
of probability functions and has a more straightforward mathematical form. In this study, the new Pareto-type
distribution is used to model the income of the Malaysian upper-class group. The threshold is determined using the
fixed proportion technique and the maximum likelihood estimator method is used to estimate the shape parameter.
Then, the goodness-of-fit of the fitted new Pareto model is measured using the coefficient of determination, R2
and
Kolmogorov–Smirnov statistics. We also measure the income inequality among the Malaysian top income earners using
the Lorenz curve, Gini and Theil indices based on the fitted new Pareto model. Finally, the new Pareto distribution is
compared to alternative distributions to analyze which model can give the best fit for the data. Our analysis shows that
the Pareto type-1 and the new Pareto models are well fitted to the top income data for all years considered. However,
the new Pareto model provides better flexibility which covering more incomes in the upper tail of the distribution
than the Pareto type-1 model. |
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