Empirical income distributions: the case of Sri Lanka

Abstract

Purpose - There has been growing interest in recent years in modelling various poverty-related issues. However, there have not been many attempts at empirical estimation of best-fit income distribution functions with an objective of subsequent use in poverty focused models. The purpose of this paper is to fill this gap by empirically estimating best-fit income distribution functions for different household income groups and computing poverty and inequality indices for Sri Lanka. Design/methodology/approach - The authors empirically estimated a number of popular distribution functions found in the income distribution literature to find the best-fit income distribution using household income and expenditure survey data for Sri Lanka and subsequently estimated various poverty and inequality measures. Findings - The results show that the income distributions of all low-income household groups follow the beta general probability distribution. The poverty measures derived using these distributions show that among the different income groups, the estate low-income group has the highest incidence of poverty, followed by the rural low-income group. Originality/value - According to the best of the authors' knowledge, empirical estimation of income distribution functions for South Asia has never been attempted. The results of this study, even though based on Sri Lankan data, will be relevant to most developing countries in South Asia and will be very useful in developing poverty alleviation strategies.