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Exponential structure of income inequality: evidence from 67 countries

  • Yong Tao
  • Xiangjun Wu
  • Tao Zhou
  • Weibo Yan
  • Yanyuxiang Huang
  • Han Yu
  • Benedict Mondal
  • Victor M. Yakovenko
Regular Article

Abstract

Economic competition between humans leads to income inequality, but, so far, there has been little understanding of underlying quantitative mechanisms governing such a collective behavior. We analyze datasets of household income from 67 countries, ranging from Europe to Latin America, North America and Asia. For all of the countries, we find a surprisingly uniform rule: income distribution for the great majority of populations (low and middle income classes) follows an exponential law. To explain this empirical observation, we propose a theoretical model within the standard framework of modern economics and show that free competition and Rawls’ fairness are the underlying mechanisms producing the exponential pattern. The free parameters of the exponential distribution in our model have an explicit economic interpretation and direct relevance to policy measures intended to alleviate income inequality.

Keywords

Income inequality General equilibrium Rawls’ fairness Technological progress Entropy 

JEL Classification

D31 D51 D63 E14 

Notes

Acknowledgements

The authors would like to thank two anonymous referees and the editorial board for valuable comments and suggestions. All errors remain ours. Victor Yakovenko was supported by grant “Statistical Physics Approach to Income and Wealth Distribution” from the Institute for New Economic Thinking (INET), and Yong Tao by the Fundamental Research Funds for the Central Universities of China (Grant No. SWU1409444).

Supplementary material

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.College of Economics and ManagementSouthwest UniversityChongqingChina
  2. 2.College of HanhongSouthwest UniversityChongqingChina
  3. 3.College of EconomicsHangzhou Dianzi UniversityHangzhouChina
  4. 4.Big Data Research CenterUniversity of Electronic Science and Technology of ChinaChengduChina
  5. 5.School of Economics and FinanceXi’an Jiaotong UniversityXi’anChina
  6. 6.Department of PhysicsUniversity of MarylandCollege ParkUSA
  7. 7.Department of Physics, CMTC and JQIUniversity of MarylandCollege ParkUSA

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