Statistical Mechanics of Income in Peripheral Capitalism: Peru, 2004-2022
Abstract
This paper studies the evolution of gross household income in Peru between 2004 and 2022.The paper aims at using the maximum entropy method and the info-metrics approach to
identify the shape of the income distribution for Peruvian capitalism. Based on data from
Peruvian National Household Surveys (ENAHO) and the Luxembourg Income Study (LIS),
I estimate a statistical model (a mixture of densities) fitting the Peruvian distribution of
household income. Based on previous literature, I describe how income shares at the bottom
of the distribution follow exponential and log-normal densities, while top income shares
replicate a Pareto distribution. As it is documented for some advanced economies, these
shapes are determined by the structural and institutional features of capitalism. While the
exponential distribution mirrors the competition for wages that happens in capitalist labor
markets, the Pareto distribution represents the competition of capitalists for rates of return
for capital. Finally, I utilize the aforementioned mixture density as a likelihood function
and propose a parametric form for the Lorenz curve. That allows me to construct further
inferences over the effects of redistribution among the household sector (i.e., a comparison of
pre-tax and post-tax income) and the effects over homoplutia (i.e., the proportion of households
located in both the 10th decile of wages and the 10th decile of profit). I found that (i)
the capitalist structure restrains the improvement of Peruvian households at the bottom of
income distribution, and (ii) homoplutia does not increase because of the high concentration
of rental income at the Pareto tail.