Thomas Blanchet

WID.world Working Paper Series

with Juliette Fournier and Thomas Piketty

We define generalized Pareto curves as the curve of inverted Pareto coefficients $b(p)$, where $b(p)$ is the ratio between average income or wealth above rank $p$ and the $p$-th quantile $Q(p)$ (i.e. $b(p)=\mathbb{E}[X|X>Q(p)]/Q(p)$). We use them to characterize entire distributions, including places like the top where power laws are a good description, and places further down where they are not. We develop a method to flexibly recover the entire distribution based on tabulated income or wealth data as is generally available from tax authorities, which produces smooth and realistic shapes of generalized Pareto curves. Using detailed tabulations from quasi-exhaustive tax data, we demonstrate the precision of our method both empirically and analytically. It gives better results than the most commonly used interpolation techniques.