Modeling the income distribution of poor households in Malaysia

Abstract

The parametric method is often applied to model income data and to assess income inequality. Parametric estimation of income distribution is convenient because it facilitates subsequent inferences about the measured inequality. In this study, we conduct a comparative assessment of four parametric distribution candidates in terms of model fitting for the income of poor households in Malaysia on the basis of survey data of household incomes for the years of 2007, 2009, 2012 and 2014. The considered models involve the reverse Pareto, shifted reverse exponential, shifted reverse stretched exponential and shifted reverse lognormal. We also derive the explicit expression of Lorenz curve and Gini coefficient for all four considered models. Finally, on the basis of the best parametric model, income inequality analysis of poor households in Malaysia is assessed using Lorenz curve and Gini coefficient.