Modeling the incomes of the upper-class group in Malaysia using new pareto-type distribution

Abd Raof, Anis Syazwani and Haron, Mohd Azmi and Mohd Safari, Muhammad Aslam and Siri, Zailan (2022) Modeling the incomes of the upper-class group in Malaysia using new pareto-type distribution. Sains Malaysiana, 51 (10). pp. 3437-3448. ISSN 0126-6039, DOI

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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, R-2 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.

Item Type: Article
Funders: Universiti Malaya GPF088B-2020, RF011B 2018FS
Uncontrolled Keywords: Gini index; Income inequality; Lorenz curve; Pareto model; Theil index
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Science > Institute of Mathematical Sciences
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 16 Oct 2023 08:14
Last Modified: 24 Oct 2023 03:56

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