Full text: The Personal Distribution of Income

16 
Thus in ur case the inc me is y » K w ^ where we supp se 
that the distribution >f income and wealth reflects in some way 
a growth pr cess which has taken place in the past 
In the ordinary fonulation we should have 
and after elimination of time 
y - In c* •» ( w • In c . ) 
<* . _ A 
which corresponds to our regression with »v * 
X 
(7) 
how in economics random elements or shocks play a large 
role and growth is influenced by them. We should therefore write, 
instead og of the above: 
W => c . e 
Y = c ^ 
£ (t) 
(t) 
where £ (t) and Yj (t) are rand m variables. As a result we obtain 
a ( 
In ( Y - >j(t) ) - In c ; , * ~ i ln( w - £ (t) ) - In cj 
(8) 
The random variables or "err rs" ( not mere ei*r rs 
of observati n ( f curse ) are in both variables The common 
tactics of re ressi n is to ascribe all the "e Tors" to one 
variable only, which yields tw regression lines acc rding to 
srf whether you choose the one or the other variable as the 
rep sitory f the errors. The equation (8) will not correspond 
to either >f the £ two regression lines. -*-t may be guessed that it 
will lie somewhere between them. ' 
Let us now start from a different angle and consider 
the two kinds of relations that exist between income and wealth. 
One is the influence of wealth on income via the rate of return. 
It mainly affects unearned income. The other is the influence of 
past incomes on wealth via the propensity t® save. Since 
present and past incomes are fairly strongly correlated it 
will appear as if current income acts qin wealth via the 
li ' \ 
propensity to save. I; \ 
At first sight it seems that the linear regression 
of income on wealth represents simply the influence of wealth 
via the rate of ret rn. There is h wever an alternative interpretation. 
;
	        

Note to user

Dear user,

In response to current developments in the web technology used by the Goobi viewer, the software no longer supports your browser.

Please use one of the following browsers to display this page correctly.

Thank you.