An Analysis of Household Income in Poland and Slovakia Based on Selected Income Models

Abstract

Abstract Research background: Studies of income distributions may focus on describing empirical distributions by theoretical models. This approach can be useful for many reasons. When choosing a statistical model, it is important both to find out a theoretical distribution function that would characterize empirical frequency distribution and to choose suitable methods to calculate the parameters of the model. In the literature, there are proposals for various types of mathematical functions. Very high accuracy with empirical distribution is characteristic for Dagum and log-normal models. In 2010 Zenga proposed a new three-parameter model for economic size distribution which possesses interesting statistical properties. Purpose: The aim of this paper is to apply and compare Dagum, log-normal and Zenga models to income distributions in Poland and Slovakia. Research methodology: The studies are based on research data from the European Quality of Life Surveys (EQLS), whose purpose is to measure both objective and subjective indicators of the standard of living of citizens and their households. The estimation parameters were obtained by means of the maximum likelihood method and D’Addario’s invariants method. Results: The results of the conducted approximations, presented in the paper confirmed the good consistency of the Dagum and Zenga distributions with the empirical income distribution of households in Poland and Slovakia. Novelty: The Zenga distribution was used for the first time to describe the income distribution of the Slovak population and it allows the best fit to the empirical data of this country.