Consumer Expenditure Distribution in India, 1983-2007: Evidence of a Long Pareto Tail

Abstract

This work presents an empirical study of the evolution of the consumer expenditure distribution in India during 1982-2007. We have used the National Sample Survey Organization data and analysed the expenditure distribution for the urban and rural sectors. It is found that this distribution is a mixture of two distributions, more particularly, it follows a lognormal in the lower tail and a Pareto distribution in the higher end. The Pareto tail consists of a remarkable 30-40% of the population in the upper end and the lower end is suitably modeled by the lognormal one. The goodness-of-fit tests endorse the proposed distribution. Moreover, the Pareto tail is widening over time for the rural sector. The Gini coefficient, a prominent measure for inequality, for the expenditure distribution is found to be stable for the entire time span.