Modeling the joint distribution of income and consumption in Italy: a copula-based approach with κ-generalized margins

This chapter elaborates a new parametric model for the joint distribution of income and consumption. The model combines estimates for the marginal distributions of income and consumption and a parametric copula function to capture the dependence structure between the two variates. Specifically, we apply the "symmetrized Joe-Clayton" copula to model the dependence between income and consumption margins whose non-identical distributions belong to the "κ-generalized" family. Using data from the Bank of Italy's Survey on Household Income and Wealth for the period 1987-2014, we find that the proposed copula-based approach accounts well for the complex dependence between income and consumption observed in our samples. The chapter also points to further developments that are specific to the field of welfare economics.