On the joint characterization of the distributions of the true income and the proportion of the reported income to the true income through a model of under-reported incomes

Abstract

In this note, we assume that the reported income is related to the true income by the so-called 'error-in-variables' model, a model which assumes that the observed incomes are under-reported. In the context of this model, the distribution of the reported income suitably truncated below coincides with that of the true income, and suitable truncated above with that of the random proportion of the reported income to the true income if, and only if, the distribution of the true income is Pareto and that of the proportion is of the power function form.joint characterization Pareto distribution power function distribution reported and true incomes