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Stochastic Ordering of Stationary Distributions of Linear Recurrences: Further Results and Economic Applications

Author

Listed:
  • Christian Di Pietro

    (Dipartimento di Studi Aziendali ed Economici, University of Napoli Parthenope, 80133 Naples, Italy
    Current address: Centre for Economic and Labour Policy Evaluation (CELPE), 84084 Fisciano, Italy.)

  • Mariafortuna Pietroluongo

    (Dipartimento di Studi Aziendali ed Economici, University of Napoli Parthenope, 80133 Naples, Italy
    Current address: Centro di Ricerca Interdipartimentale in Sviluppo Economico e Istituzioni (CRISEI), 80133 Naples, Italy.)

  • Marco M. Sorge

    (Dipartimento di Scienze Economiche e Statistiche, University of Salerno, 84084 Fisciano, Italy
    Current address: Centre for Economic and Labour Policy Evaluation (CELPE), 84084 Fisciano, Italy.
    Current address: Center for Studies in Economics and Finance (CSEF), 80126 Naples, Italy.)

Abstract
We investigate pairwise stochastic comparisons of stationary solutions to the linear recurrence X t + 1 = A t X t + B t , where A t and B t are non-negative random variables. We establish novel order-preserving properties, which enable us to obtain comparison theorems about well-known measures of conditional size, tail variability and skewness across probability distributions. While useful in studies of ergodic wealth accumulation processes and the persistence of inequality, our results can fruitfully be exploited to conduct comparative statics exercises in structural models entailing Kesten-type reduced-form representations. An application of our analysis to a dynamic asset accumulation model uncovers the qualitatively similar effects of capital income and earnings taxation on expected wealth concentration over higher quantiles as well as on conditional upper tail dispersion of wealth holdings, qualifying previous results that solely rely on the determination of Pareto exponents.

Suggested Citation

  • Christian Di Pietro & Mariafortuna Pietroluongo & Marco M. Sorge, 2023. "Stochastic Ordering of Stationary Distributions of Linear Recurrences: Further Results and Economic Applications," Economies, MDPI, vol. 11(4), pages 1-10, April.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:4:p:125-:d:1128079
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    References listed on IDEAS

    as
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