Income Distribution, Income Inequality and Life Cycle Effects - A Nonparametric Analysis for Switzerland

This paper illustrates the use of nonparametric estimation techniques in the analysis of income distribution and income inequality with focus on identifying life cycle effects. I consider kernel estimates of the univariate income density and of the bivariate incomeage density. The income-age relationship is also explored by using kernel regression. It turns out that there is a strong concave relation. To analyze the degree of inequality I estimate age-conditional inequality measures nonparametrically. Employing inequality indices belonging to the class of General Entropy measures, which are additively decomposable by population subgroups, allows to compare the results with the traditional approach. It turns out that there is hardly any difference. About 12-15% of total inequality can be attributed to life cycle effects.