Income Distribution Modelling Using Conditional Mixture Distributions: New Zealand Incomes 1985-1994

Many empirical income distributions are complicated by the existence of a second mode, found in the lower range of incomes. This phenomenon can be generated by the labour supply effects of means-tested transfer payments and the associated high effective marginal tax rates which have strong incentive effects. This means that it is often difficult to obtain a good fit to the complete range of the distribution using a single functional form of income distribution even where, as in the case of members of the generalised exponential family of distributions, multimodality can be modelled.