Some questions on economics

[Kuroneko]

Are there studies on the accuracy of the Pareto distribution in describing the distribution of wealth within multiple countries?

For example, if I take some statistics on, say, Canada, according to which in 2007 the ratio of wealth of the richest 10% to poorest 10% was 9.4 with a Gini index of 32.6. Assuming a Pareto distribution, the Lorenz curve should be L(x) = 1-(1-x)1-1/α with α = 2.034, so the richest 10% would represent 1-L(.9) = .310 and the poorest L(.1) = .0522, making the ratio 5.94. (Source: Human Development Report, 2009 [pdf].) Other countries show a similar incongruity with the assumption that the distribution is Pareto, many much worse.

Am I making some silly mistake or should I just abandon the assumption that the wealth distribution is roughly Pareto? In the latter case, is the a theoretically nice alternative that could be substituted?

On a somewhat unrelated note, is there any general opinion on the quality of the estimates of GDP at purchasing-power parity by the IMF, World Bank, and the CIA?

[Ford Prefect]

I can't point you to any studies, but this honestly strikes me as being one of those 'perfect model' situations. When I actually did economics a couple of years ago, something I remember quite vividly was a lecturer saying that basically everything in economics was based on a model, and not necessarily accurate to the real world. Certainly, it's possible that the world has just moved on since Pareto first forwarded the distribution and it might have been more accurate a hundred years ago, but I haven't done enough research to really qualify that statement beyond 'maybe'.

[Master of Ossus]

Usually I've seen log(income) used, instead. It makes for much "nicer" graphs and equations across the developed world. In very poor countries, wealth more nearly follows a normal curve and needs no adjustment.

[Surlethe]

On a somewhat unrelated note, is there any general opinion on the quality of the estimates of GDP at purchasing-power parity by the IMF, World Bank, and the CIA?

The impression I get from my international econ prof is that their statistics are pretty generally good (i.e., he swears by them), so I'd assume that goes for their PPP stats. On a philosophical note, to compare aggregate productivity, one would prefer PPP to exchange-rate calculations since the important point is how many goods and services the nation has produced.

On a lighter note, have you considered the Economist's weekly PPP calculations?

[Kuroneko]

Thanks, everyone.

I can't point you to any studies, but this honestly strikes me as being one of those 'perfect model' situations. When I actually did economics a couple of years ago, something I remember quite vividly was a lecturer saying that basically everything in economics was based on a model, and not necessarily accurate to the real world.

I was afraid of that.

Usually I've seen log(income) used, instead. It makes for much "nicer" graphs and equations across the developed world. In very poor countries, wealth more nearly follows a normal curve and needs no adjustment.

It turns normal? If it doesn't stay even roughly the same type across countries, that's very unfortunate for me. Oh, well.

The impression I get from my international econ prof is that their statistics are pretty generally good (i.e., he swears by them), so I'd assume that goes for their PPP stats.

That's good to know. Is there also any general preference between them?

On a lighter note, have you considered the Economist's weekly PPP calculations?

I haven't, due to lack of awareness that they existed. I'm actually interested in statistics over a long timeframe, since at least 1980, more preferably 1970. Granted, there doesn't seem to be any substantial difference between IMF and World Bank estimates, but since I've no experience in these areas, I though I'd ask about any potential pitfalls just in case. At this point I'd probably go with the IMF figures just because they're apparently the only ones to distribute data across several years in easily accessible form.

[Twoyboy]

On a somewhat unrelated note, is there any general opinion on the quality of the estimates of GDP at purchasing-power parity by the IMF, World Bank, and the CIA?

At work we collate a few different sources of GDP data and forecasts and IMF is our preferred free option. However, we often find they are pretty conservative, and so will wait longer than other services before altering their trends. We are just starting to pay for economic data, as our business has grown sufficiently to allow this, and find them more gung-ho on both upwards and downwards trends... but often correct in hindsight.