Entropy Based European Income Distributions and Inequality Measures

Abstract

In this paper, instead of likelihood based methods that are fragile under model uncertainty, we use entropy based methods on time-ordered household income data to recover income distribution information on European countries and obtain income inequality estimates. For information recovery, we use a family of information theoretic entropy based divergence measures to obtain income probability density functions and the corresponding inequality measures, which reflect how European country based behavioral systems are functioning, how the allocation and distribution systems are performing, and in terms of dynamics, how the economic system has changed over time.

JEL Classification: D31, E21, C1, C10, C24