Testing for changing shapes of income distribution: Italian evidence in the 1990s from kernel density estimates

By using nonparametric methods, this paper estimates the distribution of both household and size-adjusted real income in Italy between 1987–1998. Because of data sparseness in the distribution, an adaptive bandwidth is used, while to account for sample design a weighting variable is incorporated in the estimation procedure. The time invariance and the presence of modes in the distributions are tested by means of a nonparametric test and a bootstrap test, respectively. The empirical results suggest that the Italian income distribution significantly changed over time. During the eighties the density shifted rightwards, positively affecting the well being of a large fraction of Italian households. The 1993 recession altered the shape of income distribution increasing inequality and polarisation, and the following period of slow recovery did not show significant changes in the shape of distribution in terms of relative income with a consequent permanence of inequality. The polarisation of the distribution is more noticeable for size-adjusted income rather than whole household income, reflecting the influence of family size on income shape.Jel classification: C14, D31, I30The authors gratefully acknowledge financial support from the Italian Ministry of the Universities and Scientific Research (MIUR). We would like to thank two anonymous referees, Nicholas Longford, Aman Ullah and participants of the International workshop on Income Distribution and Welfare, Milan, May 2002 for their useful comments and suggestions. Obviously we are the solely responsible of any further error and omission.First version received: January 2002/Final version received: January 2003