Forecasting a time series of Lorenz curves: One-way functional analysis of variance

Abstract

The Lorenz curve is a fundamental tool for analysing income and wealth distribution and inequality at national and regional levels. We utilise a one-way functional analysis of variance to decompose a time series of Lorenz curves and develop a method for producing one-step-ahead point and interval forecasts. The one-way functional analysis of variance is easily interpretable by decomposing an array into a functional grand effect, a functional row effect and residual functions. We evaluate and compare the forecast accuracy between the functional analysis of variance and three non-functional methods using the Italian household income and wealth data.